US trade deficit is "made in America"

Jun 2013
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1. Javier E. David is the weekend editor for CNBC.com. David joined the site as a writer in 2012, covering energy, markets and general business/financial topics. Prior to CNBC, he covered foreign exchange and macroeconomics for Dow Jones and The Wall Street Journal, where he occasionally covered top Federal Reserve officials. He got his first start in journalism reporting on foreign exchange and macroeconomics, capital markets and corporate governance at Reuters, as well as global policymakers.

The following are excerpts from Javier E. David's 2 Sept 2018 article headlined "Why the US trade deficit is a 'made in America' problem that won't be helped by Trump's strong-arming on trade".

(Begin excerpts)
....According to some economists, at the heart of Trump's thinking about the trade war lie two key assumptions: That the world's largest economy can narrow both its burgeoning deficit by renegotiating commercial ties with its major trading partners, and that tariffs can help accomplish these goals — by at least forcing countries to the bargaining table.

....economists like David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at Brookings Institution, think it's "not plausible" that the U.S. will collect enough money to pay down the debt — especially with the federal government spending with no end in sight....

Both deficits are being exacerbated by the dynamics of the tax bill, which is widely perceived as helping to stimulate the economy.

On one hand, the stimulus feeds domestic demand — leading consumers to purchase more both at home and from abroad. However, it also deprives the government of revenues, and ratchets up deficit spending that at some point may trigger an economic crisis.

Steve Hanke, a professor of applied economics at Johns Hopkins University and a former member of Ronald Reagan's economic team, described the deficit problem to CNBC as one that's "made in America."

Trump's signature tax cut passed earlier this year, combined with Congress approving a massive spending bill, is expected to send the federal deficit above $1 trillion next year and beyond.....

"No matter what happens, the trade deficit is going to get bigger," Hanke told CNBC, adding that Trump will "have egg on his face" when it does. "He's doing the one thing that will expand it — he has blessed a larger fiscal deficit," Hanke said....

Trump's push for "fair trade" seeks to ensure the dominance of U.S. made products, using tariffs to make foreign goods more expensive. Yet Hanke theorized that Americans will just substitute them with cheaper goods — most of them manufactured in other low-cost international havens.

"Even if [Chinese imports] go down, all kinds of other countries will go up," he said. And if Trump expects China to back down, he could be in for a rude awakening, Hanke added.

"The trade war will get worse because China is not going to get rolled by the U.S.," he said. (End excerpts)

Source: Why the US trade deficit is 'made in America' and won't be cured by Trump's strong-arming on trade