Imagine a child excitedly inviting you to play, claiming they have an invisible unicorn in their room. One could join in the fun and suggest they have an invisible penguin to keep the unicorn company. This whimsical scenario mirrors the recent fixation of the US government on “bilateral trade deficits,” a concept that leaves many economists scratching their heads. (For instance, what’s your trade deficit with Starbucks?) However, as highlighted in a recent article from the Financial Times, it appears that Europeans are willing to humor this notion:
Brussels plans to boost US goods purchases by €50 billion to tackle the perceived “problem” in trade relations, according to the EU’s chief negotiator, who noted that the bloc is making “certain progress” toward a deal. . . .
Šefčovič emphasized to US Trade Representative Jamieson Greer and Commerce Secretary Howard Lutnick the importance of considering American services exports to the EU, which would reduce the overall trade deficit with Europe to roughly €50 billion.
He argued that this gap could be swiftly closed by ramping up purchases of US liquefied natural gas (LNG) and agricultural products.
“If we consider the trade deficit as €50 billion, I believe we can effectively . . . resolve this issue very quickly through LNG imports and agricultural commodities like soybeans or other sectors,” Sefcovic stated.
Yet, one must note that increasing European purchases of $50 billion in soybeans and natural gas would hardly make a dent in the overall US trade deficit. Instead, it would merely shrink the US bilateral trade deficit with Europe, while simultaneously inflating the deficit with other nations. This phenomenon occurs because commodities are fungible, meaning they are easily interchangeable.
For example, if Europe had been sourcing soybeans from Brazil and natural gas from Qatar, and East Asian countries had been buying these commodities from the US, the trade flows could be rerouted. Europe could now buy soybeans and natural gas from the US, while Brazil and Qatar would redirect their exports to East Asia. The net effect? A marginal increase in transportation costs, resulting in a slightly poorer world.
In the grand spectacle of American politics, this could be paraded as a “major victory.” After all, we now inhabit a surreal landscape where the administration claims to have saved 258 million American lives in just three months—an achievement purportedly encompassing three-quarters of the US population.
The Europeans seem to have recognized that if the US wishes to dwell in this imaginary realm, their best tactic is to play along, pretending that bilateral trade deficits hold any real significance.
As a side note, I attempted to locate the Betty Boop cartoon titled “Crazy Town,” but alas, all online copies are of poor quality. I remember watching these at the theater when I was young, and in my opinion, they are among the best animated works ever created, particularly the surreal pre-code versions. These films remain under copyright, allegedly to foster “innovation.” (Yes, that’s sarcasm.)
Here’s an illustrative unicorn:
