1 big thing: Despite Trump's promises, U.S. trade deficits only grow
Axios' Neal Rothschild writes: President Trump's trade war has led to an even bigger trade deficit with China, even though it was intended to improve the trade balance. But it's not just China — deficits have increased with most of our other major trade partners, too.
Why it matters: While economists agree that trade deficits aren't a good way to measure a trade relationship, they are the metric Trump fixates on, makes campaign promises about, and uses to evaluate relationships with other countries.
- Throughout his campaign, Trump vowed that he would wipe away the U.S.' trade deficits: "You will see a drop [in the trade deficit] like you’ve never seen before.”
Reality check: Among the U.S.' 15 biggest trading partners, the trade balance has moved in the wrong direction for Trump in 10 of those countries between 2016 and 2018, while the aggregate trade deficit has jumped from $503 billion to $628 billion.
- While Trump can explain the deficit spike with China as a short-term sacrifice for long-term benefit, it doesn't account for the wider trend.
The latest: The U.S. trade deficit in the first 6 months of 2019 is even bigger than in the last two years.
What's going on: Trump's tax cuts are as much to blame for the increase in the trade deficit as anything else.
- More money in Americans' pockets leads to more consumption, often of Chinese-made goods.
- The tax cut helped boost the value of the dollar, which makes imports to the U.S. relatively cheaper.
The big picture: Trade deficits mean we buy more from a country than they buy from us, but that doesn’t necessarily mean the relationship is unfair, writes Axios business editor Dan Primack.
- For example, you have a “trade deficit” with your local grocery: You give them money and get food in return.
Between the lines: Despite the dubious merit of the trade deficit as a useful barometer of the health of a trade relationship, Trump's obsession with the number has led to strained relations with key allies.
- As Axios' Jonathan Swan reported in 2018, the trade deficit is one of the items he always wants to be briefed on before meeting with a foreign leader.
- Trump picked a fight with Prime Minister Justin Trudeau over the trade balance, later acknowledging that he made up numbers in arguing that the U.S. has a trade deficit with Canada. It has a surplus.
- Coupled with immigration, the trade deficit has been a major source of Trump's animus toward Mexico.
- It led Trump to threaten auto tariffs on Europe.