Trade policy is a hot topic right now with the global system clearly moving away from a more open system to a more closed system rife with tariffs and retaliatory tariffs, and I am sure pre-emptive retaliatory tariffs (if you see this out there I claim ownership of the term). Rather than some abstract reasoned argument, which typically favors free trade in my opinion, I thought we should look at the data. I know, I know. What do I hope to accomplish by bringing facts into the discussion.
I limited the analysis to the trade surplus/deficit between each US state and three countries: Canada, Mexico, and China. These seem to be some of the more frequent countries mentioned by name in terms of drawing the ire of US policymakers as being “unfair.” The data available for download from the census for all states and the individual displays online of state data are different so be aware of this distinction. There was no indication that one or the other was a revised dataset.
By the way, as I mentioned here many times, unfair is a whiny and uninformative complaint for an economist. It is also intentionally deceptive in my opinion. Very few would argue that the US gains nothing from trade between the with these three countries. The argument is really about the distribution of the gains, with the claim being that other countries gain more than the US does. While this may in fact be true, it is completely beside the point. If we gain and others gain more, we still have a gain. To further elaborate, I would not argue that everyone only sees benefits from trade. There are some costs, mostly in the name of efficiency through reallocation of production, which translates to lower prices for goods typically. I suspect those publicly griping about trade made the political calculation that accuracy in this argument would not serve the larger purpose of inflaming support for changes in policy. And they were probably right in that calculation.
Since the debate now is largely a political debate with economics taking a back seat I decided to look at the data by state as I mentioned above. I created two maps, one with the 2017 trade surplus/deficit per person for each state, and one with the 2017 trade surplus/deficit as a percentage of state GDP. By the way, I felt like something was missing from my maps for a long while, Alaska and Hawaii. I used some different R packages and got the data to match up finally to allow the inclusion of those two states for a more complete analysis.
The two maps are largely the same, with really only minor changes and no major adjustments for states. I include both because they are distinct methods of scaling that do not necessarily need to create the same outcomes for the states. As a percent of GDP North Dakota and Louisiana are the big winners with trade surpluses in excess of five percent. There are not many other big winners but there are certainly a few in trade surplus territory. The big loser is clearly Michigan with a trade deficit with these three countries of more than thirteen percent. California and Illinois are also sizable losers with six percent and five percent declines.
My demographic interests lead me to be more interested in the per person numbers. Per person is a gross calculation that I will look to refine more in a later post, though for now it is what we have available to us. North Dakota and Louisiana are the two big winners again with sizable surpluses per person, over $3800 and $2800 per person. Michigan and California are the notable losers in this case as they were before.
Why do I present the data in this way? These three countries are at the center of the rhetoric around trade right now. While the appropriate scale for discussion is debatable, there are clear differences across states in terms of the status quo. What does that mean? Changes in policy will create winners and losers too, with North Dakota, my state of residence, having the most to lose it would seem. In the discussions on the radio I talked to callers about this. Some suggest we should change trade policy to benefit other states and the country as a whole, and they refute that it will disadvantage North Dakota. To them I would say the current approach seems like nothing but risk for North Dakota and are there gains to be had in excess of the current situation?