US trade deficits not sign of its ‘economic surrender’

The latest trade deficit figures would seem to have provided fresh ammunition for US President Donald Trump to translate into action his threats of trade remedy measures against countries with which the US has trade deficits. The US Commerce Department reported on Tuesday that, overall, the US deficit in goods and services surged by 12.1 percent from 2016 to reach $566 billion last year, the highest level in nine years. And the country’s deficit of goods with China rose by 8 percent to hit $375.2 billion last year, which is widely expected to usher in another round of aggressive trade remedy measures by the Trump administration, since it has repeatedly vowed it would narrow the trade gap with China.

Indeed, Trump campaigned on the promise to reduce the country’s high and persistent trade deficits.

Yet the question of which party benefits from a trade deficit does not have a simple answer.

For instance, the US’ rising trade deficits come from its stronger economy, which last year grew by 2.3 percent, up from 1.6 percent in 2016, encouraging Americans to spend more on imported products.

The US also does not lose as much from importing goods as Trump likes to claim. The countries to which the dollar goes to invest much of that money in the US securities market, which plays a significant role in stabilizing the US financial market.

Despite the trade deficit, therefore, the US has access to quality imported goods, and at the same time sees the dollar it has paid to its trade partners flow back into the US — benefits that Trump never mentions, as he stakes out a position of them versus us and an end to an era of “economic surrender”.

At the same time, the figures also show the US posted all-time record goods exports to 29 countries, including China.

And while Trump may see tariffs as a way to reduce the deficits, China has already sent the US a demand for talks on compensation for the steep US tariffs imposed on imported solar panels and washing machines, saying the US measures break numerous WTO rules.

So further trade retaliation measures will hardly solve the US’ deficit problem. Instead, they will wreak havoc in international trade by prompting tit-for-tat actions from its trade partners, a situation that will benefit no country.