As President Donald Trump prepares for the upcoming G7 leaders summit late this week, he is sharply at odds with his counterparts over trade. A critical, underlying disagreement concerns the way the United States has fared under the global trading system. The President has argued that other nations have benefited at U.S. expense and that drastic action is required to make America great again. The rest of the world sees a system under which the United States has flourished.
President Trump’s calculus is simple and misguided – he focuses on trade balances. He tweeted last weekend:
“When you’re almost 800 Billion Dollars a year down on Trade, you can’t lose a Trade War! The U.S. has been ripped off by other countries for years on Trade, time to get smart!”
The President’s top economic adviser, Larry Kudlow, in a press briefing this week, offered a slightly more nuanced analysis. He said the regulation of trade by the GATT and the WTO “was a good system… and it lasted for a bunch of decades. But that system has been broken in the last 20 years-plus.”
How could we judge whether the trade system helped or hurt the United States? Separately from his trade critique, Kudlow offered one general measure of success – economic growth. He says that the United States is nowthe fastest-growing economy among the industrialized nations. He intimated, but did not exactly say, that this rapid U.S. growth is recent and due to the President’s economic policies. He said this not to exculpate the trading system – which is still in effect – but to praise administration measures such as tax cuts.
Turning back to the trading system and the results President Trump inherited, the growth numbers among the G7 countries tell an interesting story. To see whether the United States has won or lost relative to its peers, we can look at the growth in real GDP per capita – that’s GDP growth, adjusted for both inflation and changes in population. This is hardly a perfect measure of economic well-being – it does not capture the differing plights of groups within the economy, for example – but it is a reasonable approximation.
Suppose we consider the time period over which Kudlow suggests the global trading system broke down and the United States was disadvantaged. We can pick the era of the World Trade Organization, which launched in 1995, and look through 2016, the last full year for which we have complete data. How did the United States do over these 22 years relative to its G7 peers?
Using World Bank data, the United States was at the top of the class. It saw per capita annualized real GDP growth of 1.46 percent. Among the G7, that was second only to the United Kingdom, which scored a slightly better 1.54 percent. In the wake of the Brexit vote, however, U.K. growth has slowed, diminishing its luster as an economic champion.
The other G7 countries all had slower growth over these decades: Canada at 1.43 percent, Germany at 1.33 percent, France at 1.03 percent, Japan at 0.86 percent, and Italy at 0.33 percent.
This makes it a very tough sell when President Trump tells the countries how disadvantaged the United States has been under the existing system and effectively demands reparations.
Of course, President Trump’s trade disquiet is hardly limited to G7 trading partners. He has also complained vigorously about the United States suffering through its trade with developing countries. How do their growth rates compare over the same period? The World Bank offers aggregate data classifying the developing world into low income and middle income countries. The low income countries saw 1.81 percent average annual growth in per capita GDP over this period; middle income countries saw 3.81 percent growth. China, a particular focus of the President’s trade attention, had 8.62 percent growth. Does this superior performance prove the President’s point?
Not really. First, we generally expect developing countries to grow faster than developed countries, if for no other reason than their ability to catch up by adopting cutting edge policies and practices. Second, this growth did not come at the expense of the United States, since growth is not zero-sum; it accompanied growth in the United States. Finally, if we look at levels, the end result of these decades of growth still left the developing countries dramatically poorer than the United States. Measured in constant 2010 dollars, U.S. per capita GDP was $52,400 in 2016. For low income countries, the corresponding figure was $600 (less than 1 percent of the U.S. level); for middle income countries, $4,800 (roughly 9 percent); and for China, $6,900 (roughly 13 percent). Even if the countries managed to slightly shrink the gap with the United States over the last couple decades, the gap remains huge. From their dramatically poorer perspective, it may be hard for them to view the United States as a victim.
These descriptive statistics do little to establish causal links between these growth outcomes and trade policies, but neither do claims from the Trump administration. The statistics do illustrate a core difference in worldview between the President and his fellow world leaders. President Trump looks at the United States and sees a losing nation that has been abused by the global trading system and deserves compensation. The rest of the world looks at data.
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