At the heart of President Donald Trump’s decision to charge cleaning fees for US trading partners is to stick to almost every trade deficit in America, if not a reversal.
However, most economists say it appears to show a fundamental misconception that Trump actually means having a trade deficit with other countries.
A trade deficit simply means that a country is exporting more goods and services from a particular country.
Maintaining a deficit usually speaks little about the state of the country’s economy. Instead, the US trade deficit simply reflects the fact that the US is a consumption-based economy. Despite the deficit, the US is still continuing strong domestic growth.
Whether the US is procuring goods that are no longer produced or procuring goods that can be produced cheaper elsewhere, large levels of import in the US reflect strong demand for goods. And the US economy generally benefits from this arrangement.
“Trade helps us get better,” Jin told NBC News.
As Congressional Research Services reported in 2018, Trump’s stabilization of the deficit reversal is “in contrast to the views of most economists.”
Countries with large trade surpluses, such as China, Russia and Saudi Arabia, tend to be heavy exporters of natural resources with relatively low domestic consumption rates.
The rest of the world with a trade surplus tends to be small developing countries.
Trump has nevertheless shown that the United States may prefer to look even more like the group of this country. The executive order, which sets trade priorities for the new administration, first listed items was the “examination of our country’s large and sustained annual trade obstacles.”
When asked what it takes to avoid wiping out the new 25% tariff, Canada and Mexico said, “They have to balance trade. We’re going to change that, not just every country, not just every country.”
The deficit persists as Americans tend to buy and save more than other countries. Economists are pretty much in line with Trump’s demand for tariffs to reverse the deficit increasing costs for U.S. consumers. And the president himself acknowledges that their imposition is likely to lead to “pain” for a while.
The US transition from the industrial sector is cost-free.
In testimony before the US Senate in 1998, Robert Scott, an economist at the left-leaning Institute for Economic Policy, said trade imbalances likely contributed to the unemployment of two million manufacturing companies from 1979 to 1994.
In addition to the lost jobs, there was a wage impact, Scott said. Since 1979, despite the exponential growth of the overall US economy over the same period, Americans’ inflation-adjusted revenues have only increased by 12%. Wealth inequality is also accelerating during this period.
Ironically, many of these same arguments are now cited by “conservative” Trump advocates.
However, overall household income, and therefore living standards, have risen even further, mainly due to profits from the stock market and rising home prices.
Most economists believe it is extremely difficult to regain a meaningful number of manufacturing roles at this point. Technology is now moving forward to the automation of many roles prioritized in America’s golden age. And for the US to re-land the manufacturing and high-intensity labor, it will likely have to pay.
Meanwhile, manufacturing jobs that the US still maintains are on average profiting from lower trade barriers. In some cases, recent federal programs are designed to support major industries such as semiconductor manufacturing.
“The trade-offs from these tariffs are too high,” Jin said. Politically speaking, there may be reasons to use them in certain circumstances, but he says: “We need a better way to use them as blunt instruments. In the end, they hurt Americans.