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President Trump is obsessed with the trade deficit — it's often the only number he requests and the only number he mentions. But the vast majority of economists agree the number is a misleading indicator of whether the United States is getting the better of any trade deal.

Expand chart
Data: U.S. Census Bureau; Chart: Andrew Witherspoon/Axios

By the numbers...

  • The top five deficits are with China ($375 billion in 2017), Mexico ($71 billion), Japan ($69 billion), Germany ($65 billion), and Canada ($18 billion).
  • The top five surpluses are with Hong Kong ($32.5 billion in 2017), the Netherlands ($24.5 billion), the United Arab Emirates ($15.7 billion), Belgium ($14.8 billion), and Australia ($14.6 billion).

Three big reasons why economists say deficits don't matter...

  1. Trade balances are dictated by macroeconomic factors — namely how much a given country saves versus invests — rather than trade policy. So trade experts say there's no point in using deficits as a scorecard.
    1. Americans are big spenders, while the Chinese and the Germans save.
  2. China's economy is experiencing export-led growth, while the U.S. has a consumer-driven economy. There's surging consumer demand for exports in the U.S., so the country has trade deficits with exporting nations.
  3. The U.S. is an attractive investment destination for countries all over the world, and that also piles onto trade deficits.

The other side ... Trump isn't alone. Jared Bernstein, who was chief economic adviser to Vice President Joe Biden, and Dean Baker, co-founder of the Center for Economic and Policy Research, wrote for The Atlantic just after Trump's election, in "Why Trade Deficits Matter":

  • "Trade deficits, even in times of strong growth, have negative, concentrated impacts on the quantity and quality of jobs in parts of the country where manufacturing employment diminishes."

Be smart: The Wall Street Journal's Greg Ip, reflecting mainstream economists and journalists, writes that trade deficits are an oversimplified and "deeply flawed gauge of trade behavior that could lead the U.S. to pick the wrong fights."

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