Trump's Empty North Korea Trade Threat Would Injure Americans the Most
It may have been just a passing tweet, but President Trump’s threat to cut off trade with all countries trading with North Korea tells us a lot about mercantilist thinking: The notion that because importers on net send money to exporters, they have all the leverage – as though all of the benefits of trade flow in one direction. The world’s reaction to the bluff – a combination of amused disbelief and terror at the economic implications – demonstrates that trade is a symbiotic relationship: Buyers and sellers need each other.
When a consumer purchases an iPhone, it is because it offers good value for the price, not to do a favor to Tim Cook or Apple shareholders. Not only is this true for end-use consumers, it is also true for intermediate producers and middleman-companies. When Apple assembles iPhones in China, it is because it is an efficient place to produce them. That benefits the consumers who buy the phone as much as the company that sells it and the people who make it. Purchases are not charitable donations. Ultimately, the greatest value is derived by the person making the purchase; we don’t buy in order to earn, we earn in order to buy.
Trade is not a cudgel to be brandished by an importer. Rather it is a two-edged sword, and trying to wield it as a weapon will draw blood from the wielder as well as the intended target. Boycotting all countries that trade with North Korea wouldn’t just hurt the sanctioned countries, it would hurt all American companies and consumers that do business with them. Just check the prices of goods you buy from developing countries, and ask yourself how much you would like to pay 30-40 percent more for them. WalMart and Amazon wouldn’t like it any more than you would.
But the intended audience for this threat is not every country that trades with North Korea, just one: China, which engages in about 80 percent of North Korea’s trade. Actually, any effort to get China to pressure North Korea is an implicit recognition that the advantages of trade are two-way. If the seller truly was the sole beneficiary of a trade relationship, China would have no leverage over North Korea, as the Chinese sell more to the North Koreans than they buy. If China does have the upper hand in the relationship, it is because it is North Korea’s principal supplier. Moreover, if the buyer really held all of the cards in a trading relationship, the United States would easily be able to impose its will on China, which has a $350 billion surplus in trade in goods between the two countries. But just imagine the impact of ending it: Trade with China makes up a bigger share of U.S. GDP than was lost during the 2008-09 recession. And a national economy is not indivisible. Despite its trade deficit in goods, the United States has a $40 billion surplus in services trade with China. It isn’t nearly as large, but if you are selling computer software, it is more important to you. Even when it comes to trade in goods, a number of U.S. industries are net exporters to China, including big-ticket manufacturers like aircraft and autos. An American farmers and agribusinesses find China an especially lucrative market, with large sales of soybeans, pork, corn and cotton. But Americans don’t just benefit when they sell to China, they also benefit when they buy. Electrical products, toys, shoes and other products are a lot cheaper than if they were made in the United States or other industrialized economies – which is why Americans purchase them. Anyone who wants to cut off imports is in effect saying ‘stop me before I buy again.’
The threat to cut off trade with China and other countries doing business with North Korea is no doubt an idle bluff. But its sheer folly reminds us of one thing: Whether a country runs a trade surplus or deficit, trade is beneficial to all – importers as well as exporters. Rather than threaten to turn it into a weapon of mass economic destruction, trade should be promoted as a driver of economic production and wealth creation. It is not just the seller who must beware of trade disruptions, but also the buyer.
