In 2016, Donald Trump promised to eliminate the United States’ $500-billion trade deficit to add 3.38 percentage points to annual GDP growth, pay for tax cuts, and decrease the national debt.
Two weeks after Trump’s election, Josh Bivens of the Economic Policy Institute predicted Trump’s trade policies would increase our trade deficit:
We at EPI have been consistent for years in opposing corporate-driven trade agreements. But Trump’s agenda on trade agreements is nothing more than a vague claim he’ll be able to negotiate “better” trade agreements. His other proposals indicate strongly that he won’t, because he doesn’t know how.
He might slap large, arbitrary tariffs on imports from countries he doesn’t seem to much like, but this will do little to improve American competitiveness. In fact, if such tariffs encourage foreign producers to set up facilities in the United States to avoid tariffs, create economic weakness in our trading partners, and/or encourage retaliatory tariffs, they will increase America’s trade deficit. A prediction: presuming the economy does not enter recession in the next four years (and there’s no reason it should, absent a huge fumble by the Trump policymaking team), the American trade deficit will be larger, not smaller by 2020 [Josh Bivens, “Already a Big Gap Between Trump’s Promises to the Middle Class and His Policies,” Economic Policy Institute: Working Economics Blog, 2016.11.23].
EPI’s prediction was right: Trumpistan just posted the largest trade deficit since 2008:
The overall US trade deficit jumped to its highest level in 12 years in July, as imports soared and exports grew by a smaller margin.
US imports from Taiwan also jumped to record levels in July, helping to add to the overall trade deficit [Finbarr Mermingham, “US Trade Deficit with China Wider than May 2016, When Donald Trump Accused China of ‘Greatest Theft in History’,” South China Morning Post, 2020.09.04].
We enjoyed a steadily increasing surplus in services throughout the Obama recovery, but that advantage peaked in early 2018, sagged a bit, then tanked when coronavirus hit and we failed to hit back:
As I explained at the beginning of the year, trade deficits signal that our economy is working well. Trade deficits result from a strong dollar and consumer demand and don’t hurt jobs. The fact that we buy more stuff from China than China buys from us doesn’t mean America is being robbed (or, in Trump’s words, “raped“) any more than the fact that I buy more stuff from Kessler’s than the Kessler family buys from me means I’m being robbed by the Kesslers.
Trade deficits are not a problem… unless you make reducing trade deficits one of your core campaign promises, the way Donald Trump did in 2016. If Trump’s supporters were honest with themselves, they’d grab their supposedly business-savvy candidate by the collar and say, “Hey, bub, you promised us lower trade deficits and gave us the opposite. What gives?” But Trump’s supporters evidently prefer promises over performance, slogans over substance, and fantasy over fact.
More to the point, Trump’s policies are almost the worst imaginable if the goal, which few economists actually share, is to shrink the trade deficit. He has run massive budget deficits, which by definition skew the current account balance toward the negative. And huge tax cuts, which helped drive the huge deficits, also prompted a couple of years of sugar-high economic growth—another factor that tends to boost imports and widen the trade deficit, especially when there’s little spare productive slack in the domestic economy to provide more goods to buy and consume. Finally, his use of tariffs on imports, all else being equal, tends to push up the value of the U.S. dollar, making imports relatively cheaper and exports relatively more expensive—again, widening the trade deficit.
If the idea were actually, for some reason, to shrink the trade deficit, the remedy would be pretty much the opposite: much smaller deficits, fewer or no tariffs (which would alleviate one cause of a rising dollar), and slower growth that would mean less consumer spending on coveted foreign goods. But that’s hardly a recipe for election-year success [Keith Johnson, “What Trump Really Doesn’t Get About Trade,” Foreign Policy, 2020.02.24].