Catherine Rampell: What's behind the ballooning trade deficit

Catherine Rampell: What's behind the ballooning trade deficit

Catherine Rampell: What's behind the ballooning trade deficit

That increase occurred despite the Trump administration's decision to impose several rounds of new tariffs a year ago on imported steel, aluminum, and thousands of Chinese-made goods, all with the intention of reducing how much America imports.

Economists speculate that the trade deficit is growing because of broad economic forces, including a chronic shortfall in national savings that was exacerbated by last year's $1.5 trillion corporate and personal income tax cut.

Simultaneously, the Federal Reserve raised interest rates four times a year ago to offset fears of an overheating economy, thereby increasing the strength of the dollar and encouraging purchase of relatively low-cost foreign goods. The tariffs are a major factor in the ongoing trade war between Washington and Beijing.

Economists don't like to dwell too much on the USA trade balance. Americans are importing far more from overseas than they are exporting-imports grew 7.5% while exports increased only 6.3%. Trump has complained that a stronger dollar has weakened his hand in his trade wars and put a damper on U.S. growth. The real petroleum gap shrank to US$141.7 billion as exports increased.

China has offered to buy a reported US$1.2 trillion in additional American products over the next six years in a deal that reportedly would ease each side's tariffs, usher in changes to Beijing's state-led economic model and include tough new enforcement mechanisms.

"We have nearly an $800 billion a year trade deficit with other nations", Trump said in November 2017.

Put another way, by Trump's own benchmark, the USA is 20% worse off than it was at the end of 2016, just before he took office. "Unacceptable. We are going to start whittling that down and as fast as possible".

Trump has pledged that once his brilliantly negotiated deals go through - the new North American Free Trade Agreement gets ratified by Congress, China fully capitulates to all his wildest demands, the European Union and Japan suddenly decide to buy more of our cars, etc. - our balance of trade will turn around.

Lawrence Summers, a Harvard economist and former chairman of President Barack Obama's National Economic Council, told The Times that "the trade deficit is a bad metric for judging economic policy".

"The risk could be more to the downside, but on the other hand this would take away some certainty and that is good for companies looking to invest", said Sebastien Page, head of global multi-asset strategy at T. Rowe Price in Baltimore. The United States ran a record surplus past year with South and Central America.

A second study by economists at Columbia, Yale, UC Berkeley and UCLA came to a similar conclusion and noted that the policies have hit Republican-leaning areas the hardest.

That study also found that workers in Republican-leaning counties, especially in farm states, suffered the greatest losses from tariffs that USA trading partners imposed in retaliation for the president's actions. We are right now taking in $billions in Tariffs.

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.

EU Trade Commissioner Cecilia Malmstrom is in Washington this week and due to meet later Wednesday with US Trade Representative Robert Lighthizer as they prepare for formal negotiations.

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