By Trump’s own benchmark, the US is 20% worse off than it was at the end of 2016, just before he took office.
Economists don’t like to dwell too much on the US trade balance. It is, by and large, an accounting measure that often moves in directions that are inverse to the health of the economy.
The US trade deficit’s biggest contraction on record came in 2009 when it shrank by more than $300bn in a single year as a result of the recession then under way — and the resulting collapse in US demand for imported goods. As a result largely of that slump, the US’s goods and services deficit with the world contracted by more than $200bn over President Barack Obama’s eight years in office.
“This is a major reason why economists say, ‘You really don’t want this as your scorecard,’’’ stated Phil Levy, a former senior economist for trade with President George W. Bush’s Council of Economic Advisers.
“It’s not an accident. When things are booming we consume more imports.’’ He added.
Despite the name, trade deficits tend to have less to do with trade policy than broader macroeconomic policy. The main long-term driver of persistent trade deficits since 1975 has been the gap between the US’s low savings rate and its attractiveness as an investment destination, fueled partly by the dollar’s role as the world’s reserve currency.
That in turn leads to a stronger dollar, which in itself helps increase the trade deficit by lowering the real cost of imports and increasing the local-currency cost of American goods in overseas markets.
In the first 11 months of 2018 the US deficit in goods and services with the world increased $52bn, or about 10%, from the same period in 2017. If that pattern holds in the December data released Wednesday — and economists surveyed by Bloomberg predict it will — the deficit will have widened to about $610bn in 2018. In 2016, it stood at $502bn.
The immediate drivers of the surge in trade deficit under Trump have been the fiscal expansion resulting from the tax cuts he pushed through Congress and the stronger dollar that resulted, partly from the juiced economy that the expansion helped create.
Trump’s supporters insist he’s tackling that via his trade negotiations with China and other US trading partners. They also point to his renegotiation of Nafta as something that will help reduce the US trade deficit in the long run.
Robert Scott, senior economist at the left-leaning Economic Policy Institute, said Trump’s failure to tackle what he sees as a global misalignment in currencies that requires a depreciation of the dollar has been the main cause of a rising trade deficit. Even Trump’s attempts to deal with currency issues in trade negotiations with China — or his public complaints about a strong dollar — seem unlikely to change anything.
The strong dollar matters because it has led to near-record deficits in manufactured goods and non-oil goods that are being masked by increases in exports of oil and services, Scott said. To his mind that means the US’s trade balance is worse than even the official data reflects. “There’s a lot going on below the surface here,’’ he said.