Donald Trump’s trade boogeyman, the U.S. goods deficit, has just grown bigger


WASHINGTON — The biggest complaint of the Trump administration as it seeks to renegotiate trade arrangements has just gotten bigger: the U.S. trade deficit ballooned to its highest level in a decade in Donald Trump’s first year in office.

Figures released Tuesday show the U.S. deficit in goods and services swelled 12 per cent last year, driven mainly by imbalances with China, then India and to a lesser extent Mexico and Germany, with goods trade with Canada representing a comparably small fraction.

Trump’s team keeps citing these imbalances as the reason to renegotiate NAFTA, threaten the U.S.-Korea agreement, cancel American participation in the Trans-Pacific Partnership and increase trade actions against China.

An example of this came at the closing news conference of the last NAFTA round in Montreal, where the U.S. trade czar focused on the specific issue of the merchandise trade imbalance as the reason for renegotiating.

”Now I ask Canadians because we’re in Canada: Is it not fair for us to wonder whether this imbalance could in part be caused by the rules of NAFTA? Would Canada not ask this same question if the situation were reversed?” Robert Lighthizer said, as his Canadian counterpart, Chrystia Freeland, stood next to him, staring straight ahead.

”So we need to modernize and we need to rebalance.”

His critics say this idea is off-base on multiple fronts.

A survey of leading economists from the University of Chicago finds almost no support for the notion that trade policy can fix these imbalances. Explaining their answers, the economists listed a variety of factors as causing deficits.

The Canadian government disputes there even is a deficit with the U.S. It says the goods imbalance is largely attributable to the U.S. need to import oil. And when trade in services is factored in, it says, the U.S. balance fares just fine.

The new U.S. Census figures show the deficit in goods with Canada grew to more than $17 billion last year from $11 billion the previous year. Also Tuesday, new Canadian figures show Canada’s own global trade deficit surged in late 2017 with an increase in imports.

In overall goods trade, the new figures show the U.S. with an $800 billion global deficit in trade excluding services. Canada accounts for about two per cent of that; Mexico and Germany for about eight per cent; India for 12 per cent and China for 46 per cent.

An economist at Scotiabank says fixing NAFTA won’t fix this.

Rather, he says, American policy-makers have been making choices in domestic policy that are destined to make these numbers worse. As an example, he points to the recent tax reforms, which he said will drive up spending, increase imports and deepen the trade deficit.

”Neither the bilateral balances nor the overall deficit are a function of trade policy,” said Brett House, deputy chief economist at Scotiabank.

”Instead (the deficit numbers) reflect U.S. consumption running persistently ahead of U.S. savings. With the recent fiscal reforms in the U.S. and wider federal budget deficits in the offing, that U.S. consumption-savings imbalance is set to get worse. Combined with a relatively still-strong U.S. dollar, U.S. trade deficits are set to keep widening because of domestic U.S. economic choices.”

Alexander Panetta, The Canadian Press


Please enter your comment!
Please enter your name here