President Trump and his trade team still have no clue about the economics of trade. Their recent tariffs on China’s solar panels and imports of Korean washing machines are just the latest evidence of the wrong and dangerous U.S. trade policy. Wrong because it is based on incorrect economic analysis. The danger is because it inevitably leads to a trade war without winners.
Let’s look at the president’s trading team and their trade perspectives. Key players in the Trump trading team are: billionaire U.S. Secretary of Commerce Wilber Ross; Peter Navarro, director of the White House National Trade Commission; and Robert Lighthizer, Washington trade lawyer for U.S. trade.
For a man, Trump’s trading team and the president himself thinks the U.S. trade deficit registered each year since 1976 is a “bad” thing and should be drastically reduced (or eliminated) if the United States is to become number one. They also believe that the culprit in causing such “bad” situations is foreign unfair trade deals and unfair trade practices. The elixir of medicine that erases the trade deficit is a large dose of imposing tariffs and other anti-trade policies on exports.
A simple analysis of the trade deficit can now be used to prove the futility of the Trump’s trading team’s ignorance of “trade” in everything and of the policy prescriptions that have any bearing on the overall U.S. trade deficit. In economics, identity plays an important role. These identities are obtained by equating two different subdivisions. By definition, identities are interesting and often important. In the national income accounting, you can come to the following identity. Indeed, this is the key to understanding the trade deficit.
(Import – Export) ≡ (Investment – Savings) + (Government Expenses – Taxes)
Given that this determination must be held, the trade deficit equals the excess of private-sector investment in savings, coupled with government spending exceeding taxes. Therefore, the corresponding part of the trade deficit is the sum of the private sector deficit plus the government deficit (federal + state and local). Therefore, the U.S. trade deficit is a mirror image of the domestic economic development in the United States. If U.S. spending exceeds U.S. income, excess spending will exceed that of imports over exports (eg, trade deficits).
The table below shows that U.S. data supports important trade markings. The cumulative trade deficit in the United States since 1975 was about 11.154 trillion U.S. dollars, with a total investment minus the savings deficit of about 10.435 trillion U.S. dollars.
The U.S. trade deficit is not caused by so-called unfair trade practices. They are veteran American President Trump can bully the country he identifies as an unfair trader; he can impose all the restrictions on his desired trading partners; but it will not change the trade balance. It will only change the composition of those who export to the United States. By influencing this composition, the president’s intervention will hurt American consumers.
For those deeply troubled by the trade deficit, Trump’s advisers did not inform him that his fiscal policy of expanding the government’s fiscal deficit would intensify the U.S. trade deficit with the later of the following day (keeping in mind the trade mark) .