“Other countries are understanding because they have been ripping us for 50 years; they have been ripping us off right from the beginning.”
Stop me if you’ve heard this before, although I assume you have. The quote from President Donald Trump might be only a few hours old, but it’s part of a decades-long view he’s held on America’s place at the center of the postwar boom in global trade.
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In the president’s telling the U.S. has selflessly, and naively, opened its markets to foreign competitors, which in turn have taken advantage of that generosity by undercutting American manufacturers with goods made with cheap labor and subsidized by tax breaks.
On the flip side, American companies are prevented from competing on a level playing field in international markets by a dastardly devised mix of tariffs, trade barriers, stealth taxes and tree-hugging environmentalists.
He narrowed his “ripping off” timeline to just 40 years in weekend interview with NBC News, but the theme has remained constant for much of the past month: April 2 will be “Liberation Day” and America will once again rule the global trading world.
There’s only one problem.
It’s already doing that.
President Trump has long argued that foreign countries have been ‘ripping us off’ for the past 50 years.
Andrew Harnik/Getty Images
The U.S. economy long ago realized that the real juice from the “consumption + investment + government spending” squeeze would come from services, not manufacturing.
And it has enjoyed unparalleled success since the global pandemic and left its international rivals, China included, wallowing in the dust.
It’s the services economy, stupid …
Ricardo Hausmann, a trade expert and Harvard professor who once ran the university’s Center for International Development, notes that while the U.S. had a $1.2 trillion deficit in trading of goods, it carries a $278 billion surplus in services.
Services, of course, generate a much wider profit margin than goods; think of Apple’s (AAPL) 46% gross margin in tech versus the 30.7% for ExxonMobil (XOM) (the biggest U.S. exporter) in petroleum and the paltry 12.5% for General Motors (GM) , the biggest U.S. automaker.
Related: Goldman Sachs analysts overhaul S&P 500, GDP targets as Trump tariffs bite
So while the U.S. has a trade deficit in goods, it’s still earning more — a lot more, in fact — by selling services. U.S. companies generated $632 billion in overseas profits last year, 82% more than the $347 billion foreign companies earned in the U.S.
In a recent piece for Project Syndicate, Hausmann says that using U.S. stock valuations, “the value of US investments abroad can be estimated at $16.4 trillion,” which are now suddenly a “far more attractive target for retaliation than tariffs on US exports.”
They’re also making more money with the same amount of people: European companies employed around 4.7 million people in the U.S. last year, while American companies were directly responsible for around 5 million jobs across the EU, the United Kingdom and Switzerland.
Tech giants on the front lines
That certainly explains why the S&P 500 has shed some $5 trillion in value over the past month, amid the worst first-quarter performance for the benchmark in five years, as investors not only awaited details of Trump’s April 2 tariff plans but also braced for the inevitable reprisals from the country’s biggest trading partners.
China is already defining its own line of attack with new restrictions on Nvidia, tied to environmental regulations, as well as indirect support for competitors of Apple in the world’s biggest smartphone market.
Related: Tariff uncertainty triggers record change to U.S. stock market outlook
Europe is reportedly preparing a similar strategy, with reports suggesting the region’s powerful Competition Commission could accelerate probes into Microsoft (MSFT) , Google parent Alphabet (GOOGL) and Facebook parent Meta Platforms (META) .
Putting the immediate profits of America’s biggest companies at risk in the hope that manufacturing jobs will somehow return over the next few years (or possibly longer) seems like a bad bet.
Trade wars put everyone at risk
It’ll seem even worse if, as many market observers expect, blunt-force tariffs on everything from cars to drugs to lumber and French wine will stoke inflation while the disruption to global supply chains slows the domestic economy. (Sound familiar?)
America doesn’t need this trade war. It’s already reaping massive rewards in terms of cheap goods, reliable foreign investment, lower government borrowing costs and growing corporate profits.
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Are there unfair practices? Sure. India’s protectionism needs a massive overhaul, China’s intellectual property theft has gone unpunished for too long, and Europe’s self-imposed role as the global tech policeman has become tiresome and, quite frankly, entirely too personal.
But those are all issues best solved in collective negotiations (the kind that Trump hates) rather than through unilateral sanctions (which he loves, as they present the chance to strike “deals” for which he can claim credit).
America won this trade war a long, long time ago. Revisiting the battlefield won’t make anyone richer.
Related: Crushing the dollar won’t solve America’s debt problem. It’ll make it worse
