Trade ‘disaster’ worsens under Trump (POLITICO)

Trade ‘disaster’ worsens under Trump

http://politi.co/2sf8Xgg

By President Donald Trump’s own litmus test, he not only failed to solve the problem, he arguably made it worse by signing a massive tax bill expected to add at least $1 trillion to the U.S. budget deficit over the next 10 years. | Nicholas Kamm/AFP/Getty Images

Trade ‘disaster’ worsens under Trump

President Donald Trump came into office promising to reduce the U.S. trade deficit — and by that measure alone, his first year might be considered a dud.

The U.S. trade deficit increased more than 12 percent in 2017, to $566 billion — its highest level since 2008, according to figures released on Tuesday by the Commerce Department.

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The bilateral trade deficit with China rose to a record $375 billion in 2017, and trade gaps with Mexico, Canada and Japan also increased.

During the 2016 campaign, Trump repeatedly zeroed in on the trade deficit, hammering it as a cause of U.S. economic decline and placing the blame on U.S. leaders, whom he accused of worshiping “globalism over Americanism.”

“This is not some natural disaster, it’s a political and politician-made disaster,” he said in a June 2016 speech in Monessen, Pennsylvania. “Very simple. And it can be corrected and we can correct it fast when we have people with the right thinking.”

Most economists, however, dispute that trade deficits are a sign of “American carnage,” as then-candidate Trump put it. Trade deficits tend to rise when times are good because businesses and consumers have more money to spend. Some of that spending is on goods and services produced in the United States and some is on goods and services from overseas. The last big drop was in 2009, when the United States plunged into the Great Recession and both imports and exports fell sharply.

Still, by Trump’s own litmus test, he not only failed to solve the problem, he arguably made it worse by signing a massive tax bill expected to add at least $1 trillion to the U.S. budget deficit over the next 10 years. That will require the United States to borrow more money from abroad, which has the effect of pushing the trade deficit higher, said Phil Levy, a senior fellow at the Chicago Council on Global Affairs.

“I think your story should be titled ‘the trade deficit is growing and that’s a good thing,’” said Christine McDaniel, a senior research fellow at the George Mason University Mercatus Center, a free market think tank. “There is no relation between the trade deficit and industrial decline or success."

While the trade deficit expanded during Trump’s first year in office, for instance, the U.S. unemployment rate fell to its lowest level in 17 years as employers hired more than 2 million additional workers. The U.S. economy picked up steam, helping to push the stock market 25 percent higher, although it has fallen in recent days on inflation fears.

“When you look in detail at the trade deficit, not only are imports going up, exports are going up. It’s just the fact that the United States is growing at a slightly faster pace than Europe and Japan at this point, or its primary trade partners in Canada and Mexico,” said Joe Brusuelas, chief economist at RSM, a financial advisory firm aimed at mid-sized companies. “This is a win-win for everyone.”

Both sides of the trade deficit debate agree that Trump did nothing in 2017 that can be seen as helping to reduce the trade deficit. While he recently announced tariffs on solar products and washing machines, those items account for a tiny fraction of overall U.S. imports, which totaled more than $2.8 trillion last year.

“They’ve got a lot of irons in the fire and some of the things that they are proposing are good ideas” that could help balance trade, said Lori Wallach, director of Public Citizen’s Global Trade Watch. “But if you look at … the laws and policies in force, they are the same as they were a year ago and not surprisingly, you have the same kind of results that Trump attacked as a candidate.”

Those irons include two Commerce Department investigations that could lead to tariffs on aluminum and steel imports from around the world to protect U.S. national security — a rarely-used justification that could be copied by other countries to the detriment of U.S. exports.

The Office of the U.S. Trade Representative is also conducting a separate probe that could lead to restrictions on Chinese imports in retaliation for Chinese policies and practices that force American firms to transfer valuable technology.

“I have very serious concerns about the long-term ramifications of justifying protectionism under the guise of national security,” said Clark Packard, trade policy counsel at the R Street Institute, a public policy research group that promotes free markets and limited government. “If your goal was to completely unravel the international trade system, I think natural security would be the string you would pull because countries are given such wide latitude to restrict imports in the name of security.”

There’s more justification for the USTR probe aimed solely at China’s forced technology and intellectual property practices, but “any attempt by the Trump administration to cut the trade deficit using trade policy would be a mistake. Imposing tariffs is going to be a drag on the economy and you’d see retaliation against American exports, potentially ensnaring unrelated industries,” Packard said.

So, what could Trump actually do to reduce the trade deficit if going at it through trade policy is a dead end?

“You have to rewrite the tax code to reduce incentives for consumption and increase incentives for Americans to save,” McDaniel said. “Going at it through trade policy — it’s not only clumsy, it’s just not going to work.”

via POLITICO

February 6, 2018 at 09:36PM

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