Submitted by Taps Coogan on the 26th of January 2018 to The Sounding Line.

There are a few different ways to measure the importance of international trade to a country’s economy. We first discussed the subject here, pointing out how much more important exports are to virtually every major economy than to the US. The following chart from Our World in Data illustrates the same point by looking at both exports and imports. The ratio of imports plus exports to GDP in the US is less than half of the world average and significantly lower than for all major American trading partners: Canada, Mexico, China, Germany, and Japan.

It is often said that no country wins a trade war. While this may be true, trade is significantly less important to the US economy than to any of its major trading partners. Furthermore, the US imports more than it exports to each of its top trading partners. In a tit-for-tat exchange of rising tariffs, the US will always be able to threaten more tariffs on more goods and services than its trading partners. So while everyone may lose a trade war, the US is likely to lose the least. That doesn’t mean starting a trade war is a good idea for the US, but it does mean that the US has quite a bit of leverage as it tries to rebalance its trade relations.

All of this is doubly true with respect to China. As we first pointed out here, the US trade deficit with China is larger than with every other country in the world combined. Roughly speaking, for every dollar of goods and services that the US exports to China, China exports three dollars worth back to the US. As talk of a trade war with China builds, it is clear who the biggest loser would be: China.

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