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It isn't exactly a secret that I view the US pharmaceutical trade deficit as a bit of a Rorschach test -- it tests whether folks form their opinion on trade issues by listening to interest groups, the President (now) or by looking at the actual trade data 1/
It is also a way to illustrate that trade deficits don't simply stem from tariffs (or non-tariff barriers). Tariffs on on pharmaceuticals are zero. & I haven't heard any complaints about non-tariff barriers in Ireland, Singapore, Switzerland and Belgium (IP box) either. 2/
If you look at USTR's report on foreign trade barriers (the one Trump held up on Wednesday) you will find lots of complaints about national health insurance systems negotiating down drug prices -- and no complaints about "pro-business" tax centers like Ireland and Sing 3/
The US trade deficit in pharmaceuticals is: a) now big, about half a point of GDP b) very clearly a consequence of the TCJA (the deficit went from $60b to $160b since it passed) & c) not a function of tariffs or NTBs in the sources of deficit -- 4/
The chart of the deficit looks like the chart of imports from low tax jurisdictions for a reason - -and what's more, the pharma deficit is exploding right now (& for reasons that go well beyond front running, the import surge started early last year) 5/
If the Trump administration was serious about fixing the pharmaceutical deficit, it would fix the pro-offshoring provisions of the TCJA -- not tariff Lesotho and Sri Lanka! 6/
The administration also has some problems with understanding magnitudes. The pharma deficit is $160b -- and imports are surging. That is real money -- 7/
The damage to the US economy from Canadian dairy protectionism and different standards for butchering poultry across the Atlantic (something Lutnick keeps mentioning) are in the hundreds of millions of dollar range, may be $1 b if done accurately ... 8/
Which gets to my final point: the tariff cure (as structured last Wed) for the relatively tiny problems that the administration has identified (poultry butchering standards) is out of proportion with any reasonable sense of the harm. Hence the justified market reaction. 10/10