A record-breaking US trade deficit: Does it really matter?

Chinese container ship

A record-breaking US trade deficit: Does it really matter?

In December, for example, the trade deficit with China jumped from $31 billion in 2017 to $37 billion in 2018.

But the deficit has been a long-standing bugaboo for Trump. It may also be in anticipation of striking a new commercial agreement with the US that will require China to raise its American purchases. Tightening fiscal policy and increasing incentives for savings are two ways to help lower the deficit, neither of which has been pursued by the Trump administration. Which it did, forcing China to cease its threats of retaliation in favor of negotiating with the U.S.

Gary Cohn, director of the National Economic Council for the first 15 months of Trump's administration, had been president and chief operating officer of Goldman Sachs for more than a decade before he agreed to become Trump's top economic adviser.

Agriculture workers, in particular, have argued that they already are the collateral damage. US and Chinese officials have recently signaled that they're close to some kind of agreement, although China has only bolstered its commitment to investing in and developing its technology sector and questions about how to enforce any trade rules remain.

President Donald Trump has been dealt a huge blow, as the U.S. trade deficit with the rest of the world has reached the highest it's been for a decade. Isn't that what we're all kind of wondering here? We are right now taking in $billions in Tariffs. This is simple protectionism and is bad for global trade and growth for a raft of reasons not least of which is that the targeted nations respond with their own tariffs on USA imports.

Christine McDaniel of the Mercatus Center at George Mason University says that should come as no surprise, given that the US runs a low saving rate and a very high consumption rate compared to other large economies like China.

A study released last week by researchers at Princeton and Columbia universities and an official at the Federal Reserve Bank of NY estimated that, by November 2018, Trump tariffs knocked $1.4 billion off of real income across the country in just that month alone. The United States had a small trade surplus of 26.5 billion in agricultural products in 2018 (this sector is part of trade in non-petroleum products). Chinese purchases of USA soybeans - one of America's top exports, which were targeted by China's retaliatory tariffs - fell by half past year to $7.1 billion from $13.9 billion in 2017. That's just wrong. It's also wrong to assert that a big trade deficit means high unemployment or a rotten economy. The answer largely (though not exclusively) has to do with Trump's own economic policies.

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.

Despite the name, trade deficits tend to have less to do with trade policy than broader macroeconomic policy. It will do little to reduce the massive imbalance in U.S. Ironically, US exports to China declined but the US imported more Chinese goods.

Tax cuts in the U.S. boosted domestic demand, while the relatively strong dollar and import tariffs weighed on exports.

Trump also halted talks on the Transatlantic Trade and Investment Partnership (TTIP), which had been negotiated between the European Union and the U.S. since 2013 during the Obama administration.

Here's an idea: Republican presidential primary challengers and Democratic contenders should go after Trump to hurting Americans.

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