As trade deficit explodes, Trump finds he can’t escape the laws of economics

The Commerce Department said Wednesday that the United States last year posted an $891.2 billion trade deficit in merchandise, the largest in the nation’s 243-year history despite more than two years of President Trump’s “America First” policies.

The results were a sobering reminder that the laws of economics still apply to a president who had promised to supercharge economic growth while simultaneously shrinking the chronic U.S. trade deficit.

Those twin promises proved incompatible, as economists had predicted.

By cutting taxes and taking the lid off government spending, Trump gave the economy a shot of adrenaline. By thinning government regulations, he sought to further spur growth and hiring.

But as these efforts boosted take-home pay, Americans spent more on foreign-made iPhones, Toyotas and Heinekens. And as the U.S. economy surged ahead of Europe’s and Japan’s, four Federal Reserve interest rate hikes lifted the dollar, making American exports more expensive.

“Macroeconomics end up ruling. You can’t wish it away. You can’t tariff it away,” said William Reinsch, a former Commerce Department official now at the Center for Strategic and International Studies.

Tariffs became a key part of Trump’s strategy for shrinking the trade deficit, the difference between the country’s high import bill and its lower export sales. He used the import taxes — on solar panels, washing machines, steel, aluminum and assorted Chinese goods — to force China and other countries into negotiations, with the aim of rebalancing trade flows.

But while negotiations remain underway — with hopes of a deal with China this month — the data released Wednesday showed that significant improvement in the nation’s trade balance remains an ambition rather than an achievement.

Even with China, which has been hit hardest by U.S. tariffs, the trade gap reached a record $419 billion last year.

Administration officials say they are working to overcome decades of poor trade policy.

Trump this month labeled the trade deficit a “disaster,” blaming “horrible deals” negotiated by his predecessors and rampant cheating by U.S. trading partners. The president told a cheering crowd that he was “standing up for the American worker,” something a president was doing “for the first time in many, many decades.”

His chief trade negotiator, Robert E. Lighthizer, said last week that the administration has taken steps toward “a more balanced and sustainable trading system” by renegotiating agreements with South Korea, Canada and Mexico, seeking a new deal with China and by increasing enforcement of U.S. trade laws.

But if the president’s goal is to close the trade deficit, the Commerce Department’s final 2018 report, which was delayed by the partial government shutdown, showed how ambitious a goal that is.

 

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