What if China or Canada Became 51st State?

We have about a $200 billion annual trade deficit with China for goods and services. American consumers and businesses buy about $275 billion of Chinese goods per year and the Chinese buy about $75 billion of goods from the U.S. There is a lot of angst, hand-wringing and concern about our overall trade deficit ($750 billion for 2006) with the rest of the world, and a lot of specific concern about our $200 billion trade deficit with China. Treasury Secretary Henry Paulson will visit China this week to discuss trade issues.

Think about this simple thought experiment, and for the moment ignore any of the cultural and political implications. Suppose that in 2007, China became the 51st state of the United States. In that case, the $200 billion trade deficit would suddenly disappear. If that is too hard to imagine, assume that Canada became the 51st state in the United States - our $75 billion annual trade deficit with Canada would immediately disappear.

How could the trade deficits with Canada or China be considered a concern or problem now, when those trade deficits would disappear if Canada or China were one of our states? If you're not convinced, when is the last time you heard any concern or hand-wringing about any trade imbalances or trade deficits between two states like Michigan and Arizona?

No doubt, Michigan exports a lot more merchandise (motor vehicles) to Arizona, than Michigan imports from Arizona, leading to a "trade imbalance" between those two states. Michigan probably has a trade surplus with Arizona, and Arizona has a trade deficit with Michigan. Who cares? Nobody. What difference does it make? None.