Trump Talks Tough On Trade, But Will He Walk The Walk?

President Donald Trump & Trumponomics

US Trade Deficit Shrunk in May, but Grew Year-to-Date

Although President Trump campaigned on shrinking America’s trade deficit, and continues to talk the talk, he has yet to walk the walk.

In fact, his administration has, thus far, accomplished surprisingly little when it comes to trade policy.

This is reflected in the numbers: according to the Commerce Department America’s exports have risen to their highest levels since April 2015.

As summarized by the Associated Press:

The Commerce Department said Thursday that the U.S. deficit in the trade of goods and services fell 2.2 percent in May to a seasonally adjusted $46.5 billion. U.S. exports rose modestly to $192 billion — the highest level since April 2015 — on rising shipments of cars and consumer goods, including cellphones. Imports fell slightly.

The deficit in goods with China fell by 6.2 percent to a seasonally adjusted $30.1 billion. The gap with Mexico rose by 5.6 percent to $6.8 billion.

This would be welcome news were it part of a broader trend, but it’s not.  When looking at the year-to-date data, the deficit continues to widen:

Despite the dip in May, the overall U.S. trade deficit is up 13.1 percent so far this year to $233.1 billion. Exports are up 6 percent to $957.8 billion. But imports are up more — 7.3 percent to $1.19 trillion.

If President Trump is to keep his campaign promises, he needs to start taking action to stabilize the balance of trade.

Why Should President Trump Care About The Balance of Trade?

Some of you may be thinking: who cares about the trade deficit?

Well, in addition to the myriad of economic reasons, a major factor is the problem of political asymmetry—the trade deficit is a political, and national security issue.

The economy may not be zero sum, but power is: the more powerful a rival nation becomes, the less powerful you are relative to them.  The trade deficit is a problem because, quite bluntly, money is power.

For example, when America trades with China, China grows disproportionately more than the US.  In fact, over the last 40 years their GDP at PPP has grown by a multiple of 64, while America’s has grown by roughly 7.  China has much more to gain than America, which is why it is so hungry for more trade.

This not only makes China rich, it makes them powerful.  Now that their economy is larger than ours, and since they have leverage over us via import dependency, they can act with virtual impunity in the South China Sea, Tibet, and Africa.  We turned China into a powerful rival.

Maybe it made economic sense, but it sure as hell made no political sense.

This is why George Washington, and even Thomas Jefferson were opposed to free trade—not on economic grounds, but political grounds.  Import dependency is a grave threat to America’s national security.

The below chart illustrates the difference between free trade with developed and developing nations—it highlights the asymmetry:

chart of top 20 US trade partners organized by deficit and surplus as a percent of total trade

Basically, America runs somewhat balanced trade with developed nations, and massive deficits with developing nations.  The relationship is asymmetrical.

Regardless, Trump made a promise to the American people.  Let’s hope he keeps it.

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