We continue to wish that the US and China will find how both will operate in this 21st century since they are the REAL countries while others are just voting Present. But besides the mercantilist framework of physical goods, positing that trade must deliver profitable balances, even at the flavour of protectionism, let me add the other “goods”.
Yes, when you add services and software, America wins the world and runs a huge “trade” surplus with every country on earth. Of course, those other “goods” are not cleared at the typical ports, and may not enter some dossiers of nations since they pass via IP addresses of computers, and banks’ digital wallets. In other words, from banking services to digital products which include Google ads, Apple Store, ChatGPT subscriptions, etc does any country come close to the modern “tariff” with US?
When this tariff conversation began, I asked the Nigeria’s trade czar to prepare a small table which shows two things: the physical trade goods surplus Nigeria enjoys over US (US imports crude oil and African foods from Nigeria while we rarely import much from the country) and Services/software (Nigeria has a huge trade deficit there, from Netflix to Microsoft to correspondence banking services). When those are taken together, President Trump will see that Nigeria is running a trade deficit against the US. And can make our tariff “0%” lol.
In other words, America leads on trade when you combine the traditional and modern trades, and President Trump should include everything in his calculation. Using only the physical goods may not capture much, since those Adam Smith postulations were promulgated well before the invention and scaling of the Internet, and they need to be upgraded.
In summary: If Country A imports physical goods worth $10m from the US, and US imports physical goods worth $30m from Country A (usually raw materials), Country A has a trade surplus of $20m. But look deeper, on services, banking and software, Country A is importing things valued at $50m from US, when US records zero from Country A. If we include everything, you can even notice that the US is the one with a comprehensive trade surplus when you include all “ports”, beyond air, land and sea, to include “internet ports”.
Take a look at the ranking of mobile apps and their downloads, the US is top in all categories. So, Nigeria’s trade czar must update its playbook when he/she visits Washington DC to negotiate for the nation. I am confident that the US will understand this point and remove the extra 14% for us because Naira needs space to breathe!
Comment on Feed
Comment 1: Ndubuisi Ekekwe which economical and statistical tools can fairly measure total trade balance in an unbiased way for all trade partners to agree on? Maybe it is already done and should be the basis of trade negotiation
My Response: “which economical and statistical tools can fairly measure total trade balance in an unbiased way” – I will not blame the tools; the issue is the data fed into the tools. Lesotho has a GDP of $2.2b but owns banks which have corresponding banks with New York, use Microsoft software, watch Netflix, use apps stores, etc. It has a trade surplus with the US because it exports jeans but imports minimal physical goods. Check its central bank on what it pays for software, etc, you will see that it is on deficit if ALL goods are included. The challenge is that people are still feeding tariff data using Adam Smith mercantilism and theory of physical comparative advantages which were purely built on atoms, with no bits and bytes.
Comment 2: Adam Smith’s postulations have since been improved by the Keynesians, New Keynesians, and neoclassical economists to incorporate modern-day technological progress. And ways to measure intangible services over the Internet have been designed as well, in terms of taxation and open economies. But since some of the big companies normally register their businesses in some of the countries they operate in, this changes the game. For instance, Meta in Ireland is seen as a European company by virtue of its incorporation in the EU.
My Response: I am not sure about that. All banks in Nigeria have correspondent banks in New York. Also, it is not the problem of Nigeria if Microsoft US wants to collect money via a shell in Ireland when we know that Ireland did not create Microsoft. As a Central Bank making that trade reconciliation payment, I will ask Microsoft to create your US bucket for me to pay; otherwise, we will not pay you. That you’re using Ireland as a wallet does not mean Microsoft is no more American. If a vessel leaving Nigeria with crude refuels in Belize before arriving US, would that not still be Nigerian crude?