Trump hates the trade deficit; most economists don’t
WASHINGTON — President Donald Trump’s fixation with America’s widening trade deficit helped to fuel his decision to impose stiff tariffs on steel and aluminum imports. Only a small group of experts share Trump’s fixation, and few see tariffs as an effective tool to narrow the trade gap.
America’s trade deficit is the gap between how much in goods and services it imports from foreign countries, and how much it exports. Trump complains about the metric frequently, saying the trade imbalance is a measure of America’s weakness on trade policy.
“We lost, over the last number of years, $800 billion a year,” he said in the White House on Monday, while defending his tariffs against criticism from Republican leaders in Congress. “Not a half a million dollars, not 12 cents. We lost $800 billion a year on trade.” He went on to say that the country “lost $500 billion” a year to China, though it was not clear what figure he was citing, given that America’s annual trade deficit with China has never climbed beyond $375 billion.
Most economists do not see the trade gap as money “lost” to other countries, nor do they worry about trade deficits to a large degree. That is because trade imbalances are affected by a host of macroeconomic factors, including the relative growth rates of countries, the value of their currencies, and their saving and investment rates. For instance, America’s trade deficit narrowed dramatically during the Great Recession, when national consumption faltered.
Trump has long argued that the trade deficit hinders economic growth, and that reducing it would accelerate U.S. job creation. Even those who agree with that view say there are better ways to reduce the imbalance than through tariffs, which can backfire and further widen the trade deficit if other countries impose reciprocal tariffs.
“If you look across countries, there’s no evidence that high tariffs reduce your trade deficit,” said Joseph E. Gagnon, a senior fellow at the Peterson Institute for International Economics, and a co-author of a 2017 book of policy recommendations on how to reduce trade imbalances.
“The trade deficit is a terrible metric for judging economic policy,” said Lawrence Summers, a Harvard economist and former chairman of President Barack Obama’s National Economic Council. Summers said tariffs would actually worsen deficits by making U.S. companies that ship steel and aluminum overseas less competitive, and by inviting foreign retaliatory tariffs against other exports.
A year ago, Trump signed an executive order directing the