The U.S. also runs surpluses, which totaled about $153 billion in 2015, with many other countries. As shown in Figure 6, our largest trade surpluses are not geographically concentrated, and are often with countries that are small in terms of GDP.
So what does all this mean for the current policy focus on trade, particularly with regard to NAFTA? First, in the data it is hard to see any direct effect on trade flows and deficits that can be attributed to passage and implementation of NAFTA. From a policy perspective, then, fixating on NAFTA may be tilting at windmills. Second, looking at specific trade flows between the U.S. and our important trading partners, we see that our trade is country-specific rather than regional in nature. Moreover, we tend to run continual deficits with some countries and surpluses with others. The theory of comparative advantage suggests that we should not aim to have a zero trade deficit with each country. Finally, comparative advantage also implies that, in promoting U.S. trade, efforts should be made to identify where the U.S. has a comparative advantage in production of goods and services and to pursue policies that enable that trade. For example, the U.S. has a clear comparative advantage in the production of certain agricultural products, yet protectionist policies are often pursued by other countries intent on keeping our products out. An effective policy towards agricultural trade would go a long way towards reducing the U.S.’s trade deficit both with Mexico and the rest of the world.
Robert A. Eisenbeis, Ph.D., serves as Cumberland Advisors’ vice chairman and chief monetary economist.