Trade: Not just a question of balance
WASHINGTON — Is the United States the 98-pound weakling of global trade? President Donald Trump and his economic advisers think so. They point to 41 straight years of U.S. trade deficits as evidence that America has been out-competed, out-negotiated and flat out cheated by trading partners like China, Mexico and Germany — countries that consistently sell more to the United States than they buy.
Friday, the Commerce Department reported that the United States once again registered a trade deficit — $43.6 billion in June. So far this year, the trade gap is $276.6 billion, up nearly 11 percent from January-June 2016.
Trump and his team view trade deficits as an economic evil that strangles growth and kills American jobs. They’ve promised to bring the deficits down — by imposing tariffs and other barriers to imports if they have to.
Many economists don’t see things quite that way. They reject the idea that trade is a zero-sum game in which the prize goes to countries that export more than they import. They argue that Americans benefit from the wider choices and lower prices that imports offer.
“I don’t see it as a question of economic weakness,” says Dean Baker, co-founder of the Center for Economic and Policy Research think tank. “You could say consumers gain. We get cheaper prices. Importers gain.”
But there are losers, too, when cheap imports enter the country, Baker says, especially among factory workers facing foreign competition. “In the Midwest, Ohio, Pennsylvania, we lost millions of jobs,” he says. “It hurt whole communities.”
Sometimes, though, a big trade deficit can be a sign of prosperity: When times are good, Americans can afford to buy more imports.
The United States, for instance, recorded a record trade deficit — $762 billion — in 2006 when economic growth was a healthy 2.7 percent. Three years later, in the depths of the Great Recession, the deficit shrank to $384 billion because worried American consumers were cutting back on imports — and everything else.
Trade deficits do reduce gross domestic product, the broadest measure of a country’s economic output. But that’s mainly a matter of mathematics. GDP is supposed to count what’s produced domestically. So imports — which can show up in the GDP as consumer spending when you buy, say, a Chilean wine — have to be subtracted to keep them from artificially inflating
Economists say deficits can be indicator of prosperity
domestic production.
Team Trump says China, Mexico and other countries take advantage of unfair trade deals to drive up their exports to the United States and block imports. Many Democrats agree.
Mainstream economists say bigger economic factors are at work. The United States spends more than it saves — choices that show up as large budget deficits in Washington and big credit-card balances in American households. And “the only way you can consume more than you produce,” Taylor notes, “is to import.”
Economists say foreigners shouldn’t be blamed for Americans not living within their means.