The US has presented a fact sheet to justify Donald’s Trump’s demand for a ‘fair and reciprocal’ trading system, causing consternation globally. It says the US is one of the most open economies in the world, but others close their markets to the US. ‘This lack of reciprocity is unfair and contributes to our large and persistent annual trade deficit…. The USA has run a trade deficit of goods every year since 1975. our trade deficit in goods exceeded $1 trillion…. The US now runs a trade deficit in agriculture of $40 billion.’
The US doth protest too much. Any other country with such large trade deficits would run out of forex, seek IMF help and have to run an austerity programme. But the dollar is so dominant in finance that the US has the ‘exorbitant privilege’ of being able to run ever-rising deficits without penalty or check. This is not a sign of unfair treatment.
Besides, a current account deficit (CAD) is the same as an investment-savings gap. The high US deficit means its investment is financed increasingly – and massively – by foreigners, not Americans. This gap can’t be reduced by imposing tariffs. It will require a huge rise in American savings, mainly by cutting gargantuan fiscal deficits.
The fact sheet ignores these points. Yet, it makes other points that cannot be brushed aside. It buttresses the case for US proposals made in 2019 to reform WTO. The refusal of many countries (including China and India) to agree to reforms led the US to seek freer trade outside WTO, through FTAs, and now through reciprocal tariffs.
The fact sheet says across 132 countries and over 6 lakh product lines, US exporters face higher tariffs more than two-thirds of the time.
This article was originally published by The Economic Times on feb 25, 2025.
