The Trade Deficit Has Increased Since Trump's Trade War

The chart above shows the tariffs imposed by Donald Trump, the tariffs imposed in retaliation, and the tariffs Trump has threatened to further impose. Trump has started this trade war because he thinks the trade deficit is hurting this country (many economists disagree). He thinks his tariffs will make other countries import more American goods and export less to the United States. Has it worked?

It has not worked, at least so far. The truth is that the trade deficit is on target to be the largest in a decade (since 2008, during the Great Recession). Here is how Heather Long , in The Washington Post, describes what is happening:

The United States trade deficit widened in June and is on track to be the biggest in a decade despite President Trump’s efforts to slash it.

For the first half of 2018, the trade deficit in goods and services hit $291.2 billion, the federal government reported Friday, which is higher than last year and puts the nation on track to have the largest annual deficit since 2008.

Trump has repeatedly promised to reduce the trade deficit during his White House tenure, but so far, it has grown under his watch.

He claims America’s “massive” trade deficit is a sign the country is getting beaten by China, Germany and others, and he blames the deficit on “very stupid” trade deals. Most economists do not view the trade deficit as a problem. They point out that a big driving factor behind the higher trade deficit this year is that U.S. consumers are buying more stuff. That’s happening largely because the U.S. economy is doing well and people feel bullish enough to shop more for goods. Trump’s tax cuts have also helped fuel the buying spree for foreign products.

“While the administration is intent on reducing the trade deficit — which it wrongly perceives to be the result of unfair trade practices — the implementation of a late-cycle fiscal stimulus package will put further upward pressure on the trade deficit in the coming months,” said Gregory Daco, head of U.S. economics at Oxford Economics, a research firm.

But Trump doesn’t see it that way. He views trade as a zero-sum game where one country is winning and the other is losing. He claims trade wars are “easy to win” and he has launched battles with numerous countries in an effort to pressure their leaders to come to the negotiating table. Trump has put tariffs on just under 4 percent of imports so far, according to The Washington Post Tariff Tracker (see above). . . .

Trump stood outside the White House a week ago and declared victory that he had reduced the trade deficit in the spring, but the figure he was using to make that claim was that there was a slight reduction in the trade deficit from the first quarter of this year to the second quarter. He left out the fact that the first quarter deficit was the highest since before the financial crisis.

U.S. exports had an unusual surge this spring as other countries rushed to buy U.S. goods before tariffs went into effect. The vast majority of economists expect that rush to buy before the trade war escalated will be followed by lower than usual exports in the second half of the year. The widening trade deficit in June is a sign it’s starting to play out that way.

Economists think Trump is wrong to be so fixated on reducing the trade deficit. The only way to really cut it is for Americans stop buying so much, they argue, and they point out that the U.S. doesn’t “lose” on trade. Americans get cheaper items from abroad and the dollars to go to China and elsewhere mostly end up returning to the United States through foreign investment and purchases of U.S. Treasury bonds. Under Trump, the United States is returning to $1 trillion annual budget deficits and looking to foreign investors to help fund it.