The Trade Numerologist: The tao of US imports
President Trump won an election in 2016 partly because he was willing to buck the established order on global trade. Pandering to blue collar workers and unions in Ohio, Pennsylvania and Michigan, he hollered bloody murder about the WTO, NAFTA and the trade deficit with China.
Among his boasts of sticking it to the global order, Trump promised a raft of new tariffs, so that US factories could jack up prices, and return to profitability, producing, and hiring, more in the US. For example, Trump threatened duties of 35% on any company that relocated factories from the US to a foreign country. The summer's end brought a new wave of threats to withdraw from NAFTA and a free trade deal with South Korea.
Around the world, CEOs and senior government officials raised their eyebrows and expressed concern. The looming specter of new US tariffs became a talking point at every international gathering focused on keeping the global economy ticking. That's still the case. In August, as Trump again threatened to put a bullet in NAFTA, European Central Bank chief Mario Draghi wanted that "a turn toward protectionism would pose a serious risk for continued productivity growth and potential growth in the global economy."
However, a look at IHS Markit's Global Trade Atlas data indicates that so far it's been business as usual. The data also underscores why economics leaders around the world care so much about US trade policy. Despite the rise of China and other Asian powerhouse economies, the US is still the world's biggest importer-by a lot. And US imports are growing. In the first six months of 2017, it shipped in a whopping $1.1 trillion worth of cars, weapons, pharmaceutical and thousands of other categories of goods, up 7.2% from the first six months of 2016. China was second at $834 billion, followed by Germany, Japan and the UK.
Top importers, first six months of 2017
There are reasons for America's busy ports. No country has ever embraced a love of cheap stuff and a free trade philosophy quite like late 20th century America. Since World War Two, US leaders have catered to their big business constituents by leading moves to dismantle tariffs all over the world, from the Uruguay Round concluded in 1994 to China joining the WTO in 2001. The result was a reshaping of global manufacturing, with big US companies like Nike, Apple and Wal-Mart abandoning more expensive US factories and getting their stuff made in faraway lands with cheap labor, especially China. This destroyed millions of jobs in US towns from Pittsburgh to Portland, angering the blue-collar voters who elected Trump.
US dominance of global imports used to be even more pronounced. For the full year of 2001, the year China joined the WTO, the US imported $1.1 trillion of goods, compared to $486 billion for Germany.
So why hasn't the Trump administration followed through on its promises to erect steep tariff walls. The biggest reason is pressure from big business, in part via the captains of industry, like Wilbur Ross and Steve Mnuchin, that Trump picked for his cabinet. They've moderated Trump's approach, and exposed the conundrum that every populist politician faces after he or she makes a promise to protect domestic industry from foreign competition: Their big business supporters hate tariffs, and policymakers worry that tariffs would trigger price increases and inflation and hurt the profits of US companies.
A good example is the pharmaceutical industry. Americans are the greediest consumers of prescription drugs in the world, and in the last 20 years, the pharmaceutical industry - giants like Eli Little, Pfizer, Allergan and Genzyme -- has set up shop in Ireland. Lured by tax breaks and a business friendly-environment, they're using the Emerald Isle as a low-cost base to make drugs for the US market. The country has become one of the world's top pharmaceutical exporters. In 2016, it shipped $8.4 billion to the US, up from $6.7 billion in 2015.
Irish Pharma Exports to US
Big pharma's move overseas has not escaped the notice of the Trump administration. "We have to get our drug industry coming back," Trump said at a press conference in January, during his transition. "Our drug industry has been disastrous. They're leaving left and right. They supply our drugs, but they don't make them here, to a large extent."
The specific threat, along with Trump's general protectionist rhetoric, was enough to cause Indiana-based Eli Lilly to delay a planned $240 million investment in County Cork on a new plant.
But as winter turned to spring and Trump buried himself in a mess of controversies, the specter of tariffs on pharmaceuticals faded. Companies stopped being worried. In May, Eli Lilly said it would go ahead and build the plant. It was no longer taking the Trump threat seriously.
There will probably come a day when protectionism in the US is too powerful a force for global firms to avoid, and imports start shrinking. But, as the data from IHS Markit underscores, it isn't happening yet.
The Trade Numerologist is IHS Markit's unique weekly look at global trade by award-winning journalist John W. Miller, formerly of the Wall Street Journal, using proprietary numbers from IHS Markit's Global Trade Atlas database, the world's most complete and accurate set of trade numbers.
- India's big potential, good news for shipping?
- The Trade Numerologist: Chinese New Year’s Big Impact on Global Trade
- VLCCs for Libya? Too many hurdles to overcome
- Trade Policy Insights: UK & EU Customs Union – Why in, why out?
- VLCC crude oil loadings: “Slow but steady wins the race”
- The Trade Numerologist: Coal Came Back From the Dead in 2018
- VLCC Spot Market
- A Changing Crude Oil Market and Implications for Asian Buyers