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Trade is not what it used to be

| Posted by: Paul Donovan | Tags: Paul Donovan Weekly

  • Global trade has changed. Over the past 30 years, global trade has gone up a lot. In 1985 global trade was barely 13% of the world economy (in real terms, which avoids the impact of oil price moves). Today, real global trade is nearly 30% of the world economy. Taxing trade through tariffs today hurts more of the global economy than in the past.
  • One big reason for trade doubling in importance is that supply chains are more complicated. Over one fifth of US manufacturing exports are made using parts imported from outside the US. Over one third of every US car exported is made using parts imported from outside the US. Twenty years ago, a US car sold abroad was a lot more "all American." Imported parts used to be a far smaller part of US exports.
  • Taxing imports into the US does not just hurt the US consumer. Taxing imports will hurt US exporters. Taxing imports does a lot more damage than in the past. The good news is that the damage is more obvious. That is a really good reason not to have a trade war. Damaged exporters show that no one wins a trade war.