A Rising 'Trade Deficit' Signals Booming Economy, That Trump Can't Cheer
No economic goal is more important to President Trump than reversing the U.S trade balance, which has seen imports exceed exports for more than 40 consecutive years. By that standard, the President’s protectionist trade policies are an abysmal failure.
In fact, the U.S posted its largest merchandise trade deficit in a decade last year, the highest since the 2008 financial meltdown, according to the Commerce Department. China’s trade surplus also grew dramatically to an historic high of about $420 billion, a 12 percent increase over the previous year.
The widening trade imbalance stands in stark contrast to President Trump’s policies and his promises on the issue. The president has launched a trade war with China and others in a determined bid to eliminate the trade gap.
His 2016 campaign was largely focused on doing that. At a rally in Pennsylvania in June 2017, Trump called the trade imbalance a “political and politician-made disaster” and said it can be “corrected.”
Last year, he called himself “Tariff Man” and called trade wars “good” and “easy to win.” He gloated over a statistical blip in November, when the United States posted a one-month decrease in its trade deficit.
How costly is this widening trade gap? Politically, they are very important. Trump has talked about what he sees as a need to reduce or even eliminate the trade deficit. His efforts to achieve that goal, such as steel and aluminum tariffs, have severely hurt the auto industry and other sectors that depend on those inputs. His farm tariffs have prompted trade retaliation from China and other countries, undermining farm incomes and raising concerns in his rural political base.
Perhaps the biggest potential political risk for Trump lies among His blue-collar supporters in the rust belt, where his promise to reverse the manufacturing trade shortfall contributed significantly to his support. At a personal level, these trade results are bound to affect Trump, who has made the trade imbalance such a priority
That’s the potential political fallout. What about the economic impact of these trade figures? Economically, it is harder to find a serious potential problem. The trade figures are largely a sign of U.S economic health. American companies and consumers have more money to spend, and they spend much of it on imports. Trump’s tax cuts have only enhanced that.
In fact, the four decades of U.S trade deficits have been accompanied by enormous economic growth. Trade deficits widened dramatically in the 1980s and 1990s, when U.S economy’s growth was robust. It was narrowest in 2009, when the recession undermined American purchasing power.
The relative unimportance of this statistic is not restricted to the United States. Of the G7 countries, a narrow majority carried trade deficits in 2016 and 2017. Of the 35 member nations of OECD - the rich countries’ club - the majority posted them in both years.
Obviously, many countries consistently show trade surpluses, including economic success stories such as Germany. But so do Mongolia, Nigeria, and Mozambique. Along with the United States, overall trade deficits are consistently posted by the U.K and Canada. Whose economy would you rather have?
The fact is, trade deficits are not a bad thing. In fact, they reflect the goal of trade, which is to buy the things we need. The 2018 trade numbers are important only because Trump made them important. Anyone who has completed Economics 101 should have realized that made no sense.
