All the Factors
WASHINGTON — Is the United States the 98-pound weakling of global trade?
President Donald Trump and his economic advisers think so. They point to 41 straight years of U.S. trade deficits as evidence that America has been out-competed, out-negotiated and flat out cheated by trading partners like China, Mexico and Germany — countries that consistently sell more to the United States than they buy.
On Friday, the Commerce Department reported that the United States once again registered a trade deficit — $43.6 billion in June. So far this year, the trade gap is $276.6 billion, up nearly 11 percent from January-June 2016.
Trump and his team view trade deficits as an economic evil that strangles growth and kills American jobs. They’ve promised to bring the deficits down — by imposing tariffs and other barriers to imports if they have to.
Many economists don’t see things quite that way. They reject the idea that trade is a zero-sum game in which the prize goes to countries that export more than they import. They argue that Americans benefit from the wider choices and lower prices that imports offer.
“I don’t see it as a question of economic weakness,” said Dean Baker, co-founder of the Center for Economic and Policy Research think tank. “You could say consumers gain. We get cheaper prices. Importers gain.”
There are losers, too, when cheap imports enter the country, Baker said, especially among factory workers facing foreign competition.
Sometimes, a big trade deficit can be a sign of prosperity: When times are good, Americans can afford to buy more imports. The United States, for instance, recorded a record trade deficit — $762 billion — in 2006 when economic growth was a healthy 2.7 percent. Three years later, in the depths of the Great Recession, the deficit shrank to $384 billion because worried American consumers were cutting back on everything.
Trade deficits do reduce gross domestic product, the broadest measure of a country’s economic output. But that’s mainly a matter of mathematics. GDP is supposed to count what’s produced domestically. So imports — which can show up in the GDP as consumer spending when you buy, say, a Chilean wine — have to be subtracted to keep them from artificially inflating domestic production.
Team Trump says China, Mexico and other countries take advantage of unfair trade deals to drive up their exports to the United States and block imports. Many Democrats agree.
Mainstream economists say bigger economic factors are at work, choices that show up as large budget deficits in Washington and big credit-card balances in American households. Economists say foreigners shouldn’t be blamed for Americans not living within their means.
The U.S. dollar is also a problem when it comes to trade — and here, economists say, Trump has a stronger case against duplicitous foreigners: Other countries have manipulated the currency markets to gain an unfair advantage.
The dollar is the world’s currency, used in international business deals and for buying global commodities such as oil. That means there’s usually high demand for dollars around the world.
In some ways, this is a good thing for America. A strong and stable dollar gives foreigners confidence to lend and invest in America.
But being the world’s currency means the dollar is often overvalued, making American-made products more expensive in foreign markets and pushing down exports. A muscular dollar also makes foreign goods cheaper in the United States and encourages Americans to buy more imports.
In years past, other countries have deliberately bought dollars and sold their own currencies to drive up the American currency and give their exporters a cost advantage.
