With the presidential front runners of both parties flogging made-in-America populism, it’s no surprise that voters are turning against free trade. So allow us to add some facts to this so far data-free debate, and we’re available to give Donald Trump a tutorial upon request.
The real-estate developer recently added Japan to his most-wanted list of job killers, which includes China and Mexico. “We have a trade deficit with Japan of over $100 billion a year,” he said during his post-primary press conference in Florida on Tuesday. “They’re killing us. You know what we sell to Japan? Practically nothing.”
Is $116 billion worth of annual goods and services exports to Japan practically nothing? Japan is the fourth largest U.S. export market in goods after Canada, Mexico and China. In 2013 the top U.S. exports to Japan were agricultural products ($12.1 billion), machinery ($10.7 billion), medical devices ($8 billion) and aircraft ($7.1 billion).
According to the U.S. Census Bureau, the overall U.S. trade deficit in goods with Japan was $68 billion last year. Vehicles accounted for much of the deficit, but that’s primarily because Japanese car makers can produce superior small cars at a lower cost than can U.S. manufacturers. Federal fuel economy standards harm American automakers more than trade does.
Notably, the U.S. enjoys large comparative advantages in high-value manufacturing and agriculture. In 2012, according to the White House trade rep, the U.S. ran a $20 billion trade surplus with Japan in private commercial services such as consulting, legal services and information technology.
Nonetheless, Mr. Trump on Tuesday rapped Japan for “playing around with the yen,” which he claimed has undercut U.S. companies. “ Caterpillar is being hurt very badly by Komatsu” of Japan, he said.
The yen has fallen by about 25% to the dollar since 2012 when it was widely thought to be overvalued, and this has benefited Japanese exporters. But the Bank of Japan ’s monetary interventions have been aimed at stimulating domestic demand and inflation, not boosting exports. In any case, Caterpillar’s recent struggles are mainly due to plunging commodity prices that have hurt global sales for its mining equipment amid slowing demand from China.
By the way, Komatsu employs thousands of workers at nine U.S. locations, which include Rolling Meadows and Peoria, Illinois. Notwithstanding the weakening yen, Japanese auto makers have also increased production in the U.S., in part to avoid import duties, hedge foreign exchange risks and reduce shipping costs. More than three-quarters of Nissans sold in the U.S. are produced domestically.
The best way to boost American exports is to remove trade barriers with new trade agreements. U.S. farm producers would particularly benefit from the Trans-Pacific Partnership with Japan and 10 other countries. Japanese tariffs on beef would fall to 9% in the 16th year of the deal from 38.5% while the 20% tariff on ground pork would be eliminated in six years. Japan’s 21.3% levy on poultry and eggs would be abolished in six to 13 years.
Mr. Trump claims that as President he would make smarter and “fairer” trade deals. He could help persuade voters by showing that he knows more than nothing about foreign trade.