It’s fair to say that U.S. President Donald Trump abhors trade deficits. Shrinking them was a cornerstone of his campaign for the U.S. presidency. Once elected, he cited them as the reason for igniting a trade war with China and imposing tariffs on other countries’ exports of steel, aluminum and other products to the U.S. Trump says trade deficits -- the difference between what the U.S. imports and what it exports -- are a sign of a declining manufacturing base and loss of American might. And he blames weak U.S. leaders before him for negotiating bad deals that caused the trade gap to widen. Problem is, trade deficits don’t always mean what Trump says they do.
1. Doesn’t a deficit reflect a weak economy?
Not necessarily. A trade deficit can mean a country’s consumers are prosperous enough to buy a lot of imported goods. China and other countries with a surplus own lots of dollars as a result, and they often reinvest those dollars in the U.S. When the economy is growing, employment is increasing and consumption is booming -- in other words, when all is well -- the U.S. trade deficit generally grows. In such times, the dollar is generally stronger against other currencies, which also pushes the trade deficit up. Seven years after the U.S. signed Nafta, the trade deficit hit a record high, yet unemployment had fallen to 3.8 percent -- the lowest point in three decades. But when the economy is contracting, the trade deficit usually shrinks, as it did during the 2008-2009 recession.
2. What is the U.S. balance of trade these days?
With exports of about $2.3 trillion and imports of about $2.9 trillion, the U.S. had a trade deficit of $568 billion in 2017, a 12.6 percent jump from $505 billion in 2016. The spike is a result of the U.S. economy’s strong growth, which more than offset the Trump administration’s efforts to cut the trade deficit with tariffs and jawboning of other countries. But the $568 billion deficit isn’t, as Trump says, an amount that the U.S. has "lost."
3. Isn’t $568 billion a huge deficit?
Yes, it’s nearly 3 percent of total U.S. output. But the trade deficit has been above $400 billion since 2002, so many economists (except for a few Trump advisers) have learned to accept them. The last time the U.S ran a trade surplus was 1975. The deficit ballooned after China’s entry into the World Trade Organization in 2001 greatly expanded U.S. imports from there. The U.S. is by no means in deficit everywhere; it has a trade surplus with many countries, including Saudi Arabia, Hong Kong and the Netherlands.
4. Doesn’t Trump put the trade deficit at $800 billion?
That’s a number he often uses. It takes only manufactured goods into account, rather than goods and services (which is how it’s most accurately calculated). The U.S. in 2017 had a $243 billion surplus in services and an $811 billion deficit in goods, netting a $568 billion deficit.
5. Will the trade deficit shrink with the U.S.’s new tariffs?