How are the benefits of trade to be shared?

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After a few days of chaos, it’s still unclear exactly what Trump wants from Canada in exchange for not imposing tariffs in a month’s time. He claims it’s about three things: drugs, migrants, and trade imbalances but, as is ever the case, any numbers he quotes are at variance with any objective analysis. There have been some suggestions that, on both drugs and migrants, the flow from the US to Canada is greater than the flow from Canada to the US. The nature of illegal flows is that we can never be certain of their true extent, but such a conclusion meets the ‘common sense’ test; it certainly sounds credible.

That leaves us with a trade imbalance. There certainly is one, even if not as large as Trump claims, but the logic (insofar as that word can be used) of Trump’s position, with his threat to impose tariffs on any country or bloc which has a trade surplus with the US, is that all bilateral trade should be at or near a point of balance between imports and exports - or else favourable to the US. It’s an impossible target, and even if it were desirable, unilateral tariffs followed by retaliatory tariffs will not achieve it. They will merely increase prices for consumers in all the countries involved.

Maybe his real agenda is the one he’s now stated often enough – the annexation of Canada, and its incorporation into the US. That would certainly make the trade imbalance disappear – or rather give a good impression of disappearing. It wouldn’t really disappear at all, of course – it would merely be internalised. The ‘51^st state’ would still be selling more to the other 50 states than it was buying from them, but no-one would notice any more. It’s equally true today that, within the current 50 states, some ‘export’ more to other states than they ‘import’ from them, but no-one cares very much because it’s all internal to the US.

Well, I say that no-one cares very much, but that’s not exactly true; it’s more that those who do care don’t realise what it is that they care about. To the extent that importing more than they export impacts the prosperity of the state concerned, that imbalance makes some US states poorer than others. Job opportunities are elsewhere, and young people often migrate out in pursuit of them. More economic migrants. In this respect, the economic relationship between some states and their fellow states within the US is not entirely unlike that between Wales and England (or more precisely, Wales and the south-east of England). But as long as all the international trade statistics treat the US (or the UK) as a single entity, those economic disparities disappear into the overall average. Annexing Canada would, in itself, make no difference whatsoever to the economic relationship between Canada and the 50 states – or to the people within those 50 states. It would merely make the discrepancy dissolve into the US average.

Taking the world as a whole, trade is always in balance. Total exports match total imports. It cannot mathematically be otherwise, because at a global level, it’s a closed system. Drawing arbitrary lines on a map and trying to balance trade across them is then a pointless exercise. The issue is, or should be, about how the economic benefits within that global closed system are distributed. It’s a question that the Trumps of this world can’t even understand, let alone answer.