Trump has made reducing the U.S. trade deficit with China a prime target of his administration, but new figures out Wednesday show that it hit a record for a second straight year under his watch.
a devaluation of the dollar could narrow the trade deficit by increasing exports faster than imports.When U.S. imports more than it exports, the trade balance shows up as a negative number in the formula to calculate gross domestic product, creating the impression it subtracts from economic growth. But McDaniel said that’s not really an accurate way to think about the figure, because imports are only subtracted from exports to avoid counting domestic consumption twice.
The trade deficit is part of a larger set of economic data known as the “current account.” This measures balance of trade and investment incomes. The flipside of the current account is another set of data known as the capital account, which measures changes in longer-term investment positions. The capital account and the current account always zero each other out.
Trump could reduce the capital account surplus, and indirectly reduce the trade deficit, by taxing new inflows of foreign investment, McDaniel said. But that would be contrary to his goal of encouraging foreign companies to build more facilities in the United States.Trump is trying to use U.S tools to attack a problem created by global factors, a point that economists have repeatedly made over the past two years to little avail.
The agreement Trump is trying to reach with China right now is expected to include major new purchases of U.S. agricultural commodities, energy products and manufactured goods. That could make a short-term “dent” in the two-way trade deficit, but over the long term the deficit will continue to increase as long as United States continues its low savings rate, McDaniel said.China’s own economic growth slowed significantly in 2018, which reduced demand for American goods.
“The deficit has grown not only because the economy is booming, but because the president’s tariffs have caused all kinds of wacky changes in trade patterns,” he said.
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