President Trump promised to bring down the trade deficit, but it hit a 10-year high last year. But, given that we don’t subscribe to the president’s zero-sum approach to trade, our reaction to the news is to raise a glass to the Trump economy.
America exported $2.5 trillion in goods and services and imported $3.1 trillion, leaving a deficit of $621 billion, the largest since 2008. Back then, the deficit hovered above $700 billion before plunging to below $400 million in 2009. That should tell you something. Remember what happened in 2009? The economy fell off a cliff. A low trade deficit often means the public feels too poor to buy goods and services.
A growing trade deficit generally means the economy is humming and consumers’ pocket books are sufficiently filled for them to buy items they want but might shun in more straitened times. It also means businesses are investing by picking up equipment and parts, some of which are made overseas.
Trump has always hated trade deficits, seeming to assume they reveal a flow of wealth out of the country. Having lived and operated in the cutthroat world of New York real estate development, the president tends to see business deals as transactions in which one party loses as much as the other party wins. When you apply this to trade, it should be obvious that it makes little sense, for it boils down to thinking that whoever gets more goods and services is losing, and whoever is getting more money is winning.
This is misguided for many reasons. For one thing, trade deficits aren’t budget deficits. Also, imports aren’t bad things.
Trump is right to care about the manufacturing industry. Manufacturing jobs from World War II until recent decades were excellent sources of wealth and stability for the middle class and working class. The disappearance of these jobs, often lost to foreign competition, created a real cost to much of the country.
But manufacturing isn’t going away. As a share of the economy, manufacturing is stable. Last year saw a big uptick in our manufacturing and exports. The Federal Reserve reported Wednesday “slight-to-moderate” manufacturing growth in almost all of the country. Manufacturers are desperate for labor at the moment. That isn’t the case when they are suffering.
This manufacturing growth is spilling into exports. America’s $2.5 trillion in exports represents a 6.3 percent increase from 2017. That’s great.
The 7.5 percent uptick in imports is also good. It reflects some global trends such as a stronger dollar and economic slowdowns in other countries, but it also reflects healthy consumption and investment by American businesses and households.
Trump’s media opponents suggest that the deficit news is a “blow to Trump,” and that’s true to the extent that Trump has wanted, by deploying tariffs and other aggressive trade-war tactics, to bring the trade deficit down. Thankfully this misguided effort hasn’t succeeded, however, largely because trade policy has less effect on trade balances than most commentators and politicians assume. Trade balances are determined far more by underlying economic factors. And here is the principal underlying factor: America is richer than it was under President Barack Obama, and so it is importing more.
So Trump does get some of the blame — that is the credit — for the rising trade deficit. Deregulation and tax cuts, both individual and corporate, have spurred economic investment and growth. That growing economy yields a growing trade deficit.
We hope President Trump does not get tired of this winning.
