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Trump Trade Deficit Highest Since 2008

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:

Olivia Rockeman, "U.S. Trade Deficit Swelled to Biggest Since 2008 in July," Bloomberg, 2020.09.03.
Olivia Rockeman, “U.S. Trade Deficit Swelled to Biggest Since 2008 in July,” Bloomberg, 2020.09.03.

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].

15 Comments

  1. jerry 2020-09-06 14:21

    Next week is infrastructure week. This is where we will put all of the 30 million of the gig economy unemployed into great paying jobs and…oh hell, cue the data laughing track.

    1 Trillion for infrastructure, in China of course. Nothing here but natta.

  2. jerry 2020-09-06 14:48

    Pale Dale rants about 5G when he knows full well that the US will never ever have 5G because the NSA cannot spy on citizens with it. Geesh, get over it and move on, that dog won’t hunt. China and Asia will have that 5G though and with it, they will be able to do amazing things that we cannot even fathom with artificial intelligence.

    “TAIPEI — Two Chinese government-backed chip projects have together hired more than 100 veteran engineers and managers from Taiwan Semiconductor Manufacturing Co., the world’s leading chipmaker, since last year, multiple sources have told the Nikkei Asian Review.

    The hirings are aimed at helping Beijing achieve its goal of fostering a domestic chip industry in order to cut China’s reliance on foreign suppliers, the sources said.” https://asia.nikkei.com/Business/China-tech/China-hires-over-100-TSMC-engineers-in-push-for-chip-leadership

    There ya go kiddo’s. The US has squandered years of sitting on our keesters and not doing anything by keep the status quo with a 4G system. A little better than dial up, but not much. Meanwhile China says catch ya later…maybe we might buy some corn or beans…That’s what you get when you have a stupid “get tough” with China, they win and we lose. We need to get smart, vote Biden.

  3. jerry 2020-09-06 16:15

    No what’s interesting? trump calls his virus a hoax, as do others, and yet they want us to believe in a vaccine trotted out just before the election to protect us from their hoax. That is what the Jewish People call chutzpah.

  4. o 2020-09-06 16:32

    There are elements of the trade deficit debate that I do have similar thoughts as President Trump (or whoever is feeding him his twitter-level slogans). The COVID pandemic has shown that the US doesn’t make much of what anyone needs when times get tough; we also are reluctant to switch over to making things needed (which seems to fly in the face of supply and demand economics). We would prefer to chug along ether producing things not needed to just halting production altogether. When everyone needed PPE, China was the supplier up and running. All that seemed to point to it not being only automation that stripped US workers of jobs, but the exporting (either active or passive) of production to a workforce easier to exploit.

    The US economy (much like SD’s) seems to be great when times are great, but any snag, any obstruction has catastrophic effects. There is surprising frailty in a system this large. I will again hypothesize that is because of the inequality of who is allowed enjoyment of this economy.

  5. jerry 2020-09-06 16:46

    Indeed o, who’s economy is it? Not 98% of us, that’s for sure. One of the things I tip my hat to China on is there dedication to lifting their people out of extreme poverty. Oh, they have a way to go, that’s for sure, but China has really done a fantastic job in that regard and it’s getting better. The key is communications and public transportation.

  6. Debbo 2020-09-06 18:05

    O and Jerry, the US economy hasn’t been “great” for quite a long time. It wasn’t great under Obama or GWB or Clinton or GHWB or Reagan. The deterioration really started in the late 1970s, imo. Nevertheless, that was then, this is now.

    Bungling Bozo has greatly exacerbated the economic inequities, as Cory’s post illustrates. His minions don’t care. Hence, the need for Biden/Harris and Democratic Congress is twofold: Save democracy and save the economy.

    VOTE VOTE VOTE VOTE VOTE VOTE

  7. leslie 2020-09-06 18:08

    What kind of a nation allows its presidency, its courts, its military, all of its governmental agencies, its emergency pandemic health care system, to be rendered dysfunctional, knowing the next real world crisis of leadership is waiting to happen in this single 4 year election term; to sink into the bizarre disfunction of the Trump “billionaire” family of criminals? A Republican one.

    There can never again be a Republican party to rise again in corrupted power. Mitch McConnell, John Thune, John Boehner, Kevin McCarthy, and Geo W. Bush have led the GOP to the edge of extinction. Now it threatens our very lives, every one of us, with global warming and pandemic denial; and the weak constitutional foundation of the democracy sold been sold for a quick buck to the one percent and Vladimir Putin.

    Armed White supremacy is the final evolution of their obstruction of the 1st black president’s Affordable Care Act, their Tea Party, their Deregulation of work, the environment, abortion and guns, their Contract with America, their fight against Civil Rights, and their Lost Cause. The party of Lincoln, my arse.

    This country was built on the capitalism of slavery and genocide. Republican cynicism has derailed the nation, and the world.

    Recognizing the constitutional is aspirational, require strong and free democracy and speech; strong regulation; strong separation of powers, money and religion; strong ethical and enforceable norms; strong enforceable bipartisanship, accountability, economic equality and equal full public education, equal full public healthcare, and equal full public social safety net.

    Defund militarism, policing, prisons, insurance and immigration in exchange for funding evolving best practices.

    Liberal California demonstrated its profound leadership capability saving lives in last nights nighttime helicopter rescue of 200 campers from forest fire. This was not the action of the Republican GOP Trump administration, but in spite of it.

  8. leslie 2020-09-06 18:21

    It is notable that Republican’s McCarthyism was master minded by Trump’s mentor, Stephen Miller-like lawyer Roy Cohn.

  9. jerry 2020-09-06 18:31

    Ms Debbo, your opinion is very much valued to me. Of course, you’re correct on what the economic situation is and has been for this country for some time. We had an incredible outlay of blood and treasure called the Vietnam War. That took the wind out of the sail for every kind of social and economic issue since the end of that boondoggle.

    We will never get back out footing until we understand that there cannot be only two classes of people in America. We will never get back our footing until we finally come to terms with our extremist views on race and immigration. Until then, we will continue down the trail of a failed and rotting empire.

    The smartest thing that was said in the last presidential election, by both candidates, was infrastructure and the need to expand it with at least a trillion dollars. Not one penny has been allocated for that endeavor. Instead we have had trump steal from the military to build a failed wall…that Mexico was supposed to pay for.

  10. John Dale 2020-09-06 19:50

    As I understand it, in this trade war, everyone is tumbling down the hill except us. We’re surfing on top of everyone else. When the dust settles, there will be the US, giving the hang loose sign.

    Informed voices see this situation as relative. Our printing presses will be indexed to the rest of them such that in the end, the dollar will still win.

    Isn’t that GREAT for America?

  11. jerry 2020-09-06 20:43

    Us, being the 30 million unemployed, no? Boy that’s some winning. Add to that 200,000 dead currently, and you almost have a hat trick.

  12. o 2020-09-06 21:30

    John Dale, who do you think “us” is? The billionaires are making a YUGE wealth grab right now, but the rest of the nation is suffering. Again, that is my point: we have defined our nation purely in terms of our most wealthy doin well — even if that means straight up exploitation of the rest of the country for them to rise. John,I don’t know you or your economic circumstance, maybe you are a billionaire so from your point of view all is rosy, but if you are not, AND you are perpetuating that view, I have to ask, why? How do you see a greedy minority exploiting the vast majority’s health and welfare for gain something you want to so constantly support?

  13. bearcreekbat 2020-09-07 01:15

    Selfishness and greed provide a solid foundation for believing that:

    in this trade war, everyone is tumbling down the hill except us. We’re surfing on top of everyone else.

    The idea that “we” should do whatever “we” can to get an advantage over “everyone else” is foundational to the Trumpist world view, namely, one’s worth is measured by what can be taken from others through coercion, trickery, swindle, fraud, or force.

  14. Cory Allen Heidelberger Post author | 2020-09-07 08:48

    O raises a fair point about the importance of self-sufficiency. We could scale that point down to a purely domestic view (as O suggests in his parentheses): I’ll bet South Dakota runs a huge trade deficit on almost all goods other than agricultural products… and even there, if we have any surplus in bulk grains and meats, we probably wipe it out with our imports of fresh produce and processed foods. Look in your next grocery basket: how much of what you buy to eat is actually made in South Dakota?

    But O, you aren’t really sharing the same “thoughts” as Trump and his advisors on this issue. You’re advocating robust local self-sufficiency that can withstand and minimize the risk of major global supply chain disruptions. Trump et al. don’t have any thought of staging a Wendell Berry-style economic revolution that would establish self-sufficiency zones of maybe 60-mile radius around every major city. Trump and his corporate pals still want global trade; they just want to sell more stuff and make more money than their foreign competitors. Trump and his corporate elites don’t plan to make money just selling Americans products they need that are built strictly by Americans from American materials. They want access to the cheapest labor, the cheapest raw materials, and the biggest markets in the world.

    For Trump, reducing the trade deficit isn’t about making America stronger or self-sufficient. It’s a childish scorecard that’s he’s latched onto all his life, a number that grossly misrepresents the full picture of a healthy global economy but which satisfies his impulses for cheap, mindless slogans.

  15. jerry 2020-09-07 08:59

    trump’s October surprise will be a complete capitulation to China on a trade deal that looks great on paper but will be much the same as Nixon’s October surprise that defeated our own George McGovern. In other words, just words no action, but a distraction.

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