Trade Deficit Grows Despite Trump's 'America First' Trade Policies
STEVE INSKEEP, HOST:
The trade deficit has grown again to the highest numbers since 2008 - $621 billion last year. So that means Americans bought that much more stuff and services abroad than they were able to sell abroad. This comes despite President Trump's constant focus on shrinking the trade deficit. He speaks of the deficit as prime evidence that other big trading nations are ripping off the United States. Well, why is the deficit growing? David Wessel directs the Hutchins Center at the Brookings Institution and is a contributor to The Wall Street Journal and a regular here.
Hi there, David.
DAVID WESSEL: Good morning.
INSKEEP: OK. Why is the deficit so large?
WESSEL: Well, President Trump's tariffs and the retaliatory tariffs from our - imposed by our trading partners certainly didn't help. But big economic factors are a much more important issue here. The global economy is slowing. The U.S. is growing faster than the rest of the world - particularly, faster than Europe these days. And that means our demand, our consumers and businesses are buying more and more from the rest of the world. But we're selling less and less to them because they're not doing so well.
INSKEEP: Oh, so in a sense, this is a sign of good times.
WESSEL: It is certainly a sign that the U.S. economy is doing better than the rest of the world.
INSKEEP: Well, then there's China, though. You did mention China in passing. Why would the trade deficit be larger with China, even as the United States is imposing tariffs on Chinese goods imported into the U.S.?
WESSEL: Well, because it turns out the tariffs aren't being counterproductive, I think. Look. If - the way the government counts deficits with other countries, they just look at goods - not services, just goods. China accounted for half the overall increase in the trade deficit in 2018, despite all the president's words. In part, that's because Beijing slammed the brakes on purchases of our stuff - soybeans, wheat and sorghum - because of this trade dispute but, in part, because the Chinese economy is slowing. In fact, the Chinese recently have been importing less, not only from us but from every one of their trading partners.
INSKEEP: Wow. Well, now, the president has raised another complaint here. He's been repeatedly attacking the Federal Reserve. And one of the things that he's been saying is that the U.S. dollar is too strong. And, of course, you trade the dollar for other currencies. And if the dollar is strong, that means that U.S. imports are cheaper, which means we buy more stuff. And also, it's harder for us to sell our stuff abroad. Is there anything to that?
WESSEL: Well, the president did say that. He said that over the weekend. The dollar has been stronger lately. And that does, as you say, hurt our exports and means we're likely to import more. But it's kind of strange to blame the Fed for that right now since the Fed has basically said, we're not going to raise interest rates anymore right now. The strength of the dollar reflects the same thing we talked about earlier. The U.S. economy is stronger than the rest of the world. And to some extent, the president's policies are contributing to that. If you run a big government budget deficit, as he did, that gives the economy a jolt. It means people have more money to spend, and some of it goes to imports. So economists tell us that big budget deficits can contribute to wider trade deficits. They predicted that. And that's what's happening now.
INSKEEP: Let's remember. The budget deficit is the deficit in government spending and borrowing and so forth. The trade deficit has to do with trade. I want to ask one other thing about this, though, David Wessel. The president's clearly bothered by trade deficits. I think, on a visceral level, we can understand that. It feels bad. It feels like we're getting poorer. It feels like we're sending too much money abroad. Is a trade deficit automatically a bad thing?
WESSEL: No. First of all, trade deficits with any particular country really don't matter at all. I mean, if the Chinese end up selling more to us but Vietnamese sent - sell less, what - doesn't really make any difference to the U.S. But the overall trade deficit does matter. It is a sign that we are consuming more than we produce, investing more than we save. It probably does hurt manufacturing. But it isn't nearly as big a factor in the - our economy and our wages and our standard of living as the president and some of his supporters suggest.
INSKEEP: David, thanks as always.
WESSEL: You're welcome.
INSKEEP: That's David Wessel.
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