Sun Sentinel Palm Beach Edition
U.S. trade gap could obstruct Trump’s vision
WASHINGTON — The U.S. trade deficit hit a four-year peak in 2016 and is posing a tough challenge to President Donald Trump’s drive to shrink the deficit, accelerate the economy and create many more jobs.
Trump’s combative stance toward America’s trading partners may not help. The president has threatened to slap punitive tariffs on imports from China, Mexico and other nations deemed to be trading unfairly. If those frictions were to fuel a trade war, it could actually worsen the U.S. trade gap. Here’s what’s at stake.
Q: What is America’s trade deficit?
A:
The deficit measures how much the value of the goods and services the nation imports exceeds the value of its exports. For 2016, the deficit totaled $502.3 billion — the gap between $2.711 trillion in imports and $2.209 trillion in exports.
Q: Why can’t the world’s biggest economy run trade surpluses — or at least smaller deficits?
A:
That’s a question Trump posed during the campaign. He heaped blame on trade deals, which he said have exploited the United States while rewarding other nations. Private economists say the answer is hardly so simple. A nation’s trade surplus or deficit, they note, reflects diverse factors, including how strong consumer spending is at home and abroad and the value of, say, the U.S. dollar against other currencies — something the United States can’t easily control.
Q: How does Trump plan to address the trade deficit?
A:
One complaint he lodged during the campaign was that other nations, notably China, were cheating the United States by manipulating their own currency to keep it undervalued. By doing so, these nations could make their goods less expensive abroad than similar American products. Trump also attacked the North American Free Trade Agreement, which two decades ago created a free trade area covering the United States, Canada and Mexico, as a catastrophe which he would renegotiate to better protect American workers and goods.
Trump has also proposed imposing punitive tariffs — as high as 45 percent — against such countries as China and Mexico if they don’t stop what he calls unfair trading practices that he says have cost millions of American manufacturing jobs. Doing so, however, would likely make countless goods that the United States imports from those countries far more expensive for Americans.
Q: Do economists generally think Trump’s policies would succeed in shrinking the trade deficit and restoring many American factory jobs?
A:
Many economists are worried. They say they fear that Trump’s threats would not only fail to produce more favorable trade terms for U.S. companies and workers but also trigger tit-for-tat trade wars with other nations.
Q: Could this approach significantly shrink the chronic trade deficits?
A:
Few think so. But if Trump could manage to forge better trade agreements, and if those deals helped increase U.S. exports while holding down imports, the U.S. trade gap would narrow as a result. The economy would accelerate, too. Trade is again expected to be a drag on the economy in 2017, but economists have forecast that other factors, including solid consumer spending, will lift the economy to growth of around 2.5 percent. Even stronger expansion is expected next year if Trump succeeds in winning Congress’ approval of his stimulus program of tax cuts, deregulation and increased infrastructure spending. Most forecasters think those initiatives would deliver a bigger economic boost than Trump’s efforts to shrink the trade deficit.