March 11, 2019

Trade Deficit Surges

“The Commerce Department said on Wednesday that a 12.4 percent jump in the goods deficit in December had contributed to the record $891.3 billion goods trade shortfall last year. The overall trade deficit surged 12.5 percent to $621.0 billion in 2018, the largest since 2008.” Reuters

Many on both sides agree that the increased trade deficit is not a sign of economic malaise, and, combined with other trends, is in fact an indicator that the economy is generally doing well:

“Imports grew faster than exports as the U.S. economy accelerated and much of the world slowed. The dollar grew stronger as capital flowed into the U.S., and the trade deficit grew to offset the larger capital inflows as it must by definition under the national income accounts… a larger trade deficit is a benign byproduct of a healthier American economy.”
Editorial Board, Wall Street Journal

“True, at times of high unemployment deficits can cost us jobs. But in normal times they don’t reduce overall employment, nor do they make us poorer. On the contrary, other countries are sending us valuable goods and services, which we’re paying for with pieces of paper — paper that pays very low interest rates.”
Paul Krugman, New York Times

See past issues

From the Left

The left criticizes Trump for focusing on reducing trade deficits, and his overall approach to trade.

“Not only did the trade deficit increase, it increased exactly where Trump said it wouldn’t… [But] the problem here is not really with Trump’s administration. The president can have some effect on international trade, but most of it is driven by the massive U.S. economy: Who buys what, from where. The problem was really that Trump made campaign trail promises he would always have had a challenge in fulfilling.”
Philip Bump, Washington Post

“[Trump] has picked trade wars the world over, with friends and foes alike… These actions and threats have led to some predictable consequences. One is that U.S. companies have stocked up on some imported goods to beat the tariffs, which increases imports in the short run. Higher imports = bigger trade deficit. Another is that other countries have levied their own retaliatory tariffs on our own products — most famously, red-state goods such as soybeans and bourbon. So there has been less demand for U.S. exports. Lower exports also = bigger trade deficit.”
Catherine Rampell, Washington Post

“The administration hoped that threatening our trade partners with tariffs would force them to negotiate new pacts that gave the U.S. a leg up in global commerce. But the results have been underwhelming. The new-and-sort-of-improved NAFTA makes some important changes around the edges of the agreement, including key ones to international dispute settlement, but is widely regarded as little more than a rebranding effort…

“The agreement shaping up between China and the U.S. is looking like even more of a disappointment. In return for lowering tariffs, China would buy more U.S. agricultural goods and lower some barriers that keep U.S. companies from operating there. It would do nothing regarding issues like intellectual property theft that are of much greater concern to U.S. corporations. Trump started an unprecedented trade war, and all we’re gonna get are some lousy soybean sales.”
Jordan Weissmann, Slate

Some note that, “Had the United States taken a different approach to industrial (and antitrust) policy over the past four decades, the dollar might be weaker; our manufacturing base stronger; the financial industry smaller; investment less concentrated in large urban centers; and many ordinary Americans better off. And a sufficiently committed ruling party — which is to say, one willing to embrace aggressive state intervention, and to run roughshod over entrenched interests — could conceivably bend our economy back in that direction… [But Trump’s] populist producerism was never a serious economic doctrine. It was a PR strategy.”
Eric Levitz, New York Magazine

From the Right

The right praises Trump’s policies for creating a strong economy.

From the Right

The right praises Trump’s policies for creating a strong economy.

“In 2018, the US imported about $2.6 billion in goods produced in other countries and we exported only about $1.7 billion of US goods produced here… That ‘unfavorable trade imbalance’ as the media frequently describes it, was actually a ‘favorable trade balance’ for the US viewed differently, since we benefited from a ‘net inflow of goods’ of nearly $1 trillion.”
Mark Perry, American Enterprise Institute

“The current growth in the U.S. trade deficit is simply due to Americans buying and selling more… [Moreover] America actually has a capital surplus, meaning companies and individuals around the world invest more money in the U.S. than we do abroad… When individuals have the freedom to buy and sell with the world—free of government intervention—businesses are forced to compete and innovate more, resulting in more choices in the marketplace…

“Rather than focusing on the trade deficit, Congress, the Trump administration, and even the media should focus more on the barriers imposed by governments (including the U.S.’) to limit trade freedom, what the real-life effects of those barriers are, and how we can fix them.”
Tori Whiting, Daily Signal

“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…

“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… 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… America’s $2.5 trillion in exports represents a 6.3 percent increase from 2017… We hope President Trump does not get tired of this winning.”
Editorial Board, Washington Examiner

Some argue that “a trade deficit reducing tariff would have to be much higher, perhaps even exceeding the 25 percent that was supposed to apply two months ago… The 10 percent [tariff] was not a tariff designed to reduce the trade deficit. It was the tariff designed to get China’s attention. Which it did, forcing China to cease its threats of retaliation in favor of negotiating with the U.S… Wednesday’s trade deficit figures strengthen the Trump administration’s hand because they demonstrate that China has much more at stake than the U.S. in keeping tariffs from escalating.”
John Carney, Breitbart

On the bright side...

Mooove over, LTE: 'Me+Moo' uses 5G to connect you to real-life cow.
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