You can’t fix trade deficits with tariffs – Bawumia tells policymakers

Former Vice President of Ghana, Dr. Mahamudu Bawumia, has issued a warning. He cautioned policymakers against using tariffs to fix trade imbalances. He believes these deficits are macroeconomic issues that trade policy cannot solve.

Dr. Bawumia spoke at the International Democracy Union (IDU) Forum in Brussels. He criticized the growing disregard for economic history and principles. “Policymakers are failing to learn from history and economics,” he stated.

He used global trade data to illustrate trade imbalances. Africa accounts for only 2.5% of global exports and 2.9% of imports. In contrast, Asia contributes 43% of exports and 38% of imports.

Europe's contributions are 38% for exports and 51% for imports. The United States exports 8% and imports 14%. “These are clear trade imbalances,” he noted.

Dr. Bawumia explained that a country's trade balance relates to macroeconomic conditions. It particularly involves national savings and investment levels. Trade deficits arise from structural economic issues, not just trade policy failures.

He referred to the national income identity equation: income equals consumption plus investment plus government spending plus net exports (exports minus imports). This shows that a deficit occurs when spending exceeds savings.

“For any country that spends more than it saves, you will see a trade deficit,” he said. He emphasized that this is a macroeconomic problem, not a trade policy issue like tariffs can resolve.