Equanimity in bilateral trade may have lost its luster as a guiding principle but it seems to be making a comeback. We contend that for nations to be in an “equanimous range,” the exports of each trading partner should represent as little as 40% and as high as 60% of the bilateral trade total. This report illustrates how several key U.S. trading relationships fail this simple test of equanimity.
U.S. exports as a percentage of select bilateral trading totals, June 2019:
Canada: 48.4% equitable
Mexico: 41.9% equitable
Americas (other): 59.3% equitable
European Union: 40.1% equitable
U.K.: 52.4% equitable
Germany: 32.8% not equitable
Italy: 29.8% not equitable
Ireland: 12.9% not equitable
So. Korea: 41.9% equitable
Taiwan: 37.1% not equitable
Japan: 33.6% not equitable
China: 19.2% not equitable
The genesis of these one-sided outcomes in trade relations, invariably tends to have a foreign exchange component and state-sponsored policies that favor one nation at the expense of the other. We conclude our study with some policy alternatives to enrich policy options being discussed to address the world’s largest bilateral trade relation, that of the United States with China.
This report was written with policymakers and FX market participants in mind. The trade imbalances that are actively being corrected through trade tariffs impact FX regimes as well as trade and industrial policies, which in turn impact corporate returns and supply chains.