The Retired Investor: More Nations End-Run U.S. In Trade Deals

There were concerns that U.S. tariffs during the Trump presidency would spark similar responses from other nations. This could have greatly reduced global trade, possibly causing an economic recession. That outcome did not happen, but a different development did.

 

While retaliation is still a possibility, Donald Trump's multiple tariff threats have proven to be more of a negotiating tactic than anything else. The downside for foreign nations is that it has disrupted trade, stock markets, and geopolitical discourse. After eight years of this, most countries have concluded that it is far easier to do business with someone else in trade.

 

Since 2017, many trade deals between nations have excluded the U.S. Most of these deals happened quietly and received little attention. Recently, however, larger and more significant agreements have started to draw notice.

 

Last month, one of America's chief trading partners, Canada, announced a landmark agreement with China. Prime Minister Mark Carney, along with a delegation of Canadian businessmen, visited China, met with Chinese President Xi Jinping, and agreed to lift or lower tariffs on a variety of products. Everything from Chinese electric vehicles, Canadian lobsters, crabs, peas, and pork was on the table.

 

A week later, Canada and India announced an agreement to increase trade, centered on India's willingness to buy Canadian crude oil and natural gas exports. Currently, 97 percent of all of Canada's energy exports are earmarked for the U.S. That is changing. Carney has vowed to double Canada's non-U.S. exports. Therefore, targeting India makes sense since it is the third-largest consumer of oil and LNG.

 

Switching gears, at the end of January, the European Union and India clinched what was called "the mother of all deals," according to the head of the EU's executive branch. This new free trade agreement intends to deepen economic and strategic ties. If successful, this positive trade pact could impact as many as 2 billion people. The accord will allow free trade on almost all goods between India and Europe, covering everything from textiles to medicines.

 

Indian Prime Minister Narendra Modi said the agreement "represents 25 percent of global GDP and one-third of global trade." The deal is in response to the Trump administration's steep import tariffs, which have targeted both countries. Trump's duties and tariffs have disrupted established trade flows that have been in effect for decades, and our trading partners have had enough of it.

 

As for China, Trump's efforts to corral China's trade surplus have backfired. China recently reached a record $1.1 trillion trade surplus despite Trump's tariffs. U.S. tariffs have forced many nations, especially in Southeast Asia, to look for other trading partners, and China has gladly stepped in to take America's place.

 

As a result, the U.S. deficit with global trading partners nearly doubled in November, with EU trade accounting for a third of the increase and the goods deficit with China rising by about $1 billion to $13.9 billion. Year over year, the U.S. trade deficit rose 4 percent.

 

Since Donald Trump has come on the scene, the U.S. share of trade flows has been steadily declining. Over the past eight years, four of every five nations have seen trade rise as a share of their GDP. The one exception has been the U.S., where it has dipped to around 25 percent of GDP.

 

Make no mistake: America remains a dominant financial and economic superpower. The idea of "America First" has benefits — as the U.S. outpaces most peers in growth, without relying on trade. While its share of major global equity indices is almost 70 percent, it accounts for only 15 percent of global trade, a figure that is projected to continue declining.

 

While America looks inward, the EU has signed eight agreements and China nine, including a 15-nation Asian partnership the U.S. abandoned. The EU also signed major deals in South America and Mexico.

 

After nearly a year of intermittent negotiations and tariff threats, the U.S. and India abruptly signed a free trade agreement this week, just days after the EU/India announcement. Although details remain unsettled, the agreement is largely symbolic: it would lower India's main tariff from 25 percent to 18 percent and remove an extra 25 percent tariff that Trump imposed last summer in response to India's Russian oil purchases.

 

While the agreement is being touted as a win-win for both parties, India won't be buying U.S. oil to replace Russian energy. Thanks to the India/Canada deal, it is Canada that will benefit from that transaction. As the U.S. turns its back on free trade and embraces a mercantilist and tariff-fueled state economy, it leaves the door wide open for others to fill the vacuum.