The idea that free trade is always and everywhere beneficial is a theoretical construct with no practical application in the global realities of the 21st century. The US, the guardian of free trade, had imports in 2024 of $4,11 trillion and exports of $3,19 trillion and had a trade deficit of $1,21 trillion. Subtracting the surplus in services ($295 billion) the net deficit was $917 billion. The US trade deficit with the EU in 2024 was $236 billion, minus a US services surplus of $75 billion, so a net EU deficit with the US of $161 billion. The US buys 10% of its imports from the EU.
The unfair practices of some Asian economies—mainly China, with a trade surplus of about $1,3 trillion in 2024—consist of state-owned enterprise subsidies, import quotas, persistent devaluation of the national currency, capital controls, preferential access to infrastructure and cheap land, and even environmental exemptions, are forms of indirect subsidies and below-cost export prices. The end result is cheap costs for the exporter who accumulates huge trade surpluses, and unequal competition for the producer in the country that imported these goods. So globalization is changing!
These practices have led to trade deficits for many countries, including the US and the EU. The EU has a $303 billion deficit with China, and the US $295 billion with China in 2024. The EU imports 21,3% of its imports from China.
The EU-US agreement includes 15% tariffs on Europeans, a promise to buy $750 billion worth of American energy (currently $80 billion in LNG, to be increased to $250 billion), and $600 billion in investment (up from $100 billion a year), a very large agreement, the largest to date. The EU will work with the US on areas such as mutual recognition of telecommunications standards, cybersecurity, so that networks and equipment work together. They will simplify certification procedures for pork and dairy products, and many technical details are included, including non-tariff barriers.
15% tariffs are good for the US because they are small enough for importers and exporters to absorb some of the cost without passing it on to the price. But they make American industry more competitive and bring in a lot of tariff revenue, which can be used to reduce their public debt.
Tariffs force the unwilling to come to the negotiating table. The United States has pursued a trade policy for 70 years that may have made sense at one time, but the end result has been that other countries have had higher tariffs and non-tariff barriers to imports from the United States. The open US economy has led to a massive transfer of manufacturing and jobs to other countries. This is now being reversed through trade agreements, reaching agreements with countries that are beneficial to both sides: the United States imposes a level of tariffs, and other countries open their markets to US exports. This reduces trade deficits, creating an industrial boom. These are clearly huge net benefits for the United States.
The EU will reduce tariffs, accept some elements of US car standards, reduce tariffs on all industrial goods exported from the US — chemicals, medical devices, etc., reduce tariffs on several agricultural products produced in the US, and the US maintains a 15% tariff on imports from the EU, to reduce the $161 billion trade deficit with the EU. EU President von der Leyen said that this agreement is about balancing trade, recognizing the legitimacy of the US position to take measures to reduce the trade deficit. The US stressed that EU countries must protect their markets and solve issues of oversupply or cheap imports from third countries. The US also wants to remove digital services taxes.
The EU will increase its imports from the US and therefore lose its surplus of 161 billion with the US. It will have to reduce its deficit of 303 billion with China by a corresponding amount in order to avoid losses in outflows of money. The US demonstrates that in the effort to combat unfair practices in international trade, they ensure an increase in their exports but the EU is not protected from the unfair competition it is already subject to from other countries. Therefore, the EU will remain alone in dealing with its trade deficits mainly with that of China (€303 billion).
Apart from the US, which has a global trade deficit of $1,211 billion, there are other countries with trade deficits such as India: $245,5 billion, the United Kingdom: $233,1 billion, France: $82,3 billion, the Philippines: $65.9 billion, Japan: $47.9 billion, Spain: $37.5 billion, etc.
The US has been moving forward in the last three months reshaping global trade. It has agreements with the EU, Japan and other partners, so it enters talks with China with a strong hand. Talks are always constructive, but let's not expect a huge deal right away, but continued progress, control of implementation, the flow of critical raw materials and the foundation for balanced trade in the future.
But the US is looking to get a better deal from China if it doesn’t embarrass all the other countries. It believes that allies and adversaries should be treated differently, and it is now negotiating a deal with China — even selling them semiconductors (chips) to force them to follow US specifications and standards. This will increase trade with China, while the narrative was that the West would be disconnected from China, but now there will be more Chinese markets than ever before. When America wins, American technology becomes the global standard, and that explains why it would benefit the US to export Nvidia chips to the Chinese market.
photo geralt, https://pixabay.com
