AP NEWS

Trump trade policies aren’t working

March 21, 2019

President Donald Trump has railed against the U.S. trade deficit, vowing to slash it with aggressive tariffs and market-gyrating trade wars. But his economic policies have ushered in the largest trade deficit in American history.

That deficit last year was $891.2 billion, the Commerce Department recently reported. The trade gap with China surged to $419 billion.

Who could have predicted this despite two years of “America First” policies? Economists. Lots and lots of economists.

That’s because tax cuts and deregulation freed up household and business spending, meaning people and companies purchased more goods from abroad. Here’s how N. Gregory Mankiw, an economics professor with Harvard University, put it this fall, writing for The New York Times:

“The tax cuts, for example, tend to increase private spending, by both households on consumption goods and businesses on investment goods. Reduced business regulation should also stimulate investment spending. Because the trade deficit represents an excess of spending over production, this increased spending results in a larger trade deficit.”

OK, so the tax cuts juiced the economy and increased spending. But what about Trump’s trade wars and tariffs? They have also widened the trade gap. He has slapped tariffs on solar panels, soybeans, washing machines, steel and aluminum, among other goods. But the end result has been Americans paying more for those products, and retaliatory tariffs have made U.S. goods more expensive. Taxpayers have also been bailing out farmers hurt by retaliatory tariffs.

Again, this is from the experts.

As the Washington Post has reported, two recent studies have found American consumers have paid for U.S. tariffs in the form of higher prices on imported goods.

“When we impose a tariff, it is the domestic consumers and purchasers of imports that bear the full cost of the tariffs,” David Weinstein, an economics professor at Columbia University and co-author of one of those studies, told the Post.

Meanwhile, the federal government has provided billions of dollars in assistance to farmers who produce corn, soybeans, dairy products, sorghum, pork and wheat due to retaliatory tariffs that increased the cost of American goods, dampened international demand and therefore widened the trade deficit. It’s a self-created problem.

In the simplest terms, the U.S. economy is strong. A trade deficit means U.S. consumers and businesses have money to spend. Mexico has a trade surplus of about $64 billion in 2017 with the U.S., but that does not mean its economy was stronger. It just meant that it was producing more goods for U.S. consumers and businesses to buy. And as experts have noted, those surplus dollars are often reinvested in the U.S. economy.

In short, a trade deficit or surplus is a fairly meaningless way to gauge the economy, and yet Trump has blasted the trade deficit as a disaster. His use of tariffs and threats of trade wars have created market gyrations, and his trade agreements with Mexico and Canada, South Korea and potentially China have been relatively modest.

He hasn’t reduced the trade deficit but dramatically expanded it. Analysts have noted the U.S. trade deficit tightened significantly in 2009 during the height of the Great Recession. That’s a cure we hope doesn’t recur, but it’s clear the president’s strategy isn’t helping.