(Bloomberg) -- President Donald Trump, the self-proclaimed Tariff Man, is set to become the $100 Billion Man.
If the trends of the past year and economists’ expectations hold true, trade data to be released Wednesday will show the U.S.’s deficit in goods and services with the world topped $600 billion in 2018. That means Trump’s presidency will have seen the U.S. trade shortfall -- the main metric by which he judges countries to be winning or losing -- grow by more than $100 billion.
Put another way, by Trump’s own benchmark the U.S. is 20 percent worse off than it was at the end of 2016, just before he took office.
Economists don’t like to dwell too much on the U.S. trade balance. It is, by and large, an accounting measure that often moves in directions inverse to the health of the economy.
The U.S. trade deficit’s biggest contraction on record came in 2009 when it shrank by more than $300 billion in a single year as a result of the recession then under way -- and the resulting collapse in U.S. demand for imported goods. (As a result largely of that slump the U.S.’s goods and services deficit with the world contracted by more than $200 billion over President Barack Obama’s eight years in office.)
“This is a major reason why economists say, ‘You really don’t want this as your scorecard,’’’ said Phil Levy, a former senior economist for trade with President George W. Bush’s Council of Economic Advisers. “It’s not an accident. When things are booming we consume more imports.’’
Despite the name, trade deficits tend to have less to do with trade policy than broader macroeconomic policy.
The main long-term driver of persistent trade deficits since 1975 has been the gap between the U.S.’s low savings rate and its attractiveness as an investment destination, fueled partly by the dollar’s role as the world’s reserve currency. That in turn leads to a stronger dollar, which in itself helps increase the trade deficit by lowering the real cost of imports and increasing the local-currency cost of American goods in overseas markets.
In the first 11 months of 2018 the U.S. deficit in goods and services with the world increased $52 billion, or about 10 percent, from the same period in 2017. If that pattern holds in the December data released Wednesday -- and economists surveyed by Bloomberg predict it will -- the deficit will have widened to about $610 billion in 2018. In 2016 it was $502 billion.
The immediate drivers of the surge in the trade deficit under Trump have been the fiscal expansion resulting from the tax cuts he pushed through Congress and the stronger dollar that resulted, partly from the juiced economy that expansion helped create.
Trump’s supporters insist he’s tackling that via his trade negotiations with China and other U.S. trading partners. They also point to his renegotiation of Nafta as something that will help reduce the U.S. trade deficit in the long run.
But Trump’s trade policy also contributed materially to the growth of the trade deficit in 2018. The tariffs he threatened and then imposed on Chinese imports caused a rush by importers to get ahead of the new duties that fueled an increase in incoming traffic at West Coast ports last year. The retaliatory tariffs Trump provoked from China also hit major U.S. agricultural exports such as soybeans.
Moreover, his attacks and threats to impose tariffs on trading partners from China to the European Union has also contributed to the slowdown in those economies and therefore their demand for American goods.
Trump and his supporters have cast the blame in part on the Federal Reserve, arguing that its decisions to hike rates last year contributed to the strengthening of the dollar. Trump has complained that a stronger dollar has weakened his hand in his trade wars and put a damper on U.S. growth.
But advocates of a stronger U.S. currency policy argue that Trump himself carries plenty of blame.
Robert Scott, senior economist at the left-leaning Economic Policy Institute, said Trump’s failure to tackle what he sees as a global misalignment in currencies that requires a depreciation of the dollar has been the main cause of a rising trade deficit. Even Trump’s attempts to deal with currency issues in trade negotiations with China -- or his public complaints about a strong dollar -- seem unlikely to change anything.
The strong dollar matters because it has led to near-record deficits in manufactured goods and non-oil goods that are being masked by increases in exports of oil and services, Scott said. To his mind that means the U.S.’s trade balance is worse than even the official data reflects. “There’s a lot going on below the surface here,’’ he said.
