Markets fear the U.S. will be a loser in its own trade war, but the trade deficit numbers miss the point. 

American companies outsourced low‑margin assembly work abroad while keeping the high‑value design, software, and branding in‑house, so U.S. economic profits still dwarf those of other nations. 

Even with big trade gaps and foreign barriers, U.S. companies remain far ahead on innovation and earnings, meaning a tariff war is unlikely to dent their overall advantage.

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The U.S. started this trade war and the U.S. will suffer the most from it. 

… at least, that’s what the market thinks.

Domestic stocks have been in a tailspin since Trump’s “Liberation Day” announcements. The S&P 500 has plunged 7.1%.

And the rest of the world as measured by the iShares MSCI ACWI ex U.S. Fund (ACWX) is down a mere 6.5%.

Investors have concluded that the Trump administration will lose its own trade war. But there’s a lot more to this story than meets the eye.

‘Reciprocal tariffs’ don’t actually have much to do with tariffs, per se…

That is, it’s not about tariffs other countries have levied on the U.S. Trump’s numbers are a rudimentary calculation of the U.S.’ trade deficit with each country.

We don’t think this is the right way to look at global trade. Slapping double-digit tariffs on these countries won’t close the trade gap overnight.

But the numbers are, admittedly, staggering.

Take Vietnam, which runs a 90% trade surplus with the U.S. That means we buy far more goods from Vietnam than it buys from us.

And it’s nearly as bad in other parts of the world. China runs a 70% surplus with the U.S. India’s is more than 50%. Even the EU is looking at a 40% surplus.

Those numbers make it look like we’re “losing” because other countries don’t want our goods.

They look at how much a country’s industry ships to the U.S. They don’t consider how much money those countries make from selling to the U.S.

This nation has spent decades moving out of lower-return businesses. Our corporations haven’t been outsourcing for three decades to do other countries a favor.

They took the least profitable parts of their business models and found overseas partners to handle them.

That’s why Big Tech giant Apple (AAPL) turned to Chinese electronics maker Foxconn to assemble iPhones. 

It’s why athletic apparel retailer Nike (NKE) lets its Vietnamese and Chinese partners stitch together shoes and sportswear.

The list goes on and on. And all the while, those U.S. businesses have held on to the profitable pieces.

Apple still designs the iPhone and many of its components. It creates the software that allows its products to run. And Nike still controls its brand, innovation, and partnerships with famous athletes.

So, while other countries might sell us a lot of goods, we’re still coming out on top.

If an industry is focused on innovation, knowledge leadership, and most other competitive advantages, it’s probably centered in the U.S.

And that’s why our economic profit—our corporate earnings minus costs and investments—has dominated the rest of the world for decades, trade imbalance or not.

Take a look…