FCP Bob, on 17 April 2018 - 03:53 PM, said:
umm, they aren't ?
Running a trade surplus isn't good and running a trade deficit isn't bad. They are mostly just an accounting function determined by a country's saving rate and level of foreign investment.
A tariff is a tax on consumers of the goods being taxed. I thought you didn't like taxing Americans ?
Read this article at the WSJ. It explains things very well.
The U.S. runs a trade deficit because it consumes more than it produces while its trading partners, collectively, do the opposite. (Another way of saying this is that the U.S. invests more than it saves, while other countries save more than they invest.) Lately, the gap has grown, to an average of $54 billion a month since October from $46 billion a month in the prior 12 months.
Some of the wider trade deficit reflects a recent falloff in foreign growth, especially Europe which the International Monetary Fund this week predicted won’t last, and a surge in post-hurricane construction and replacement demand in the U.S. But some is more long lasting, in particular the huge tax cut that Mr. Trump signed into law in December and took effect on Jan. 1. Anticipation of the tax cut spurred business investment and sent stock prices up sharply, generating more spending by newly enriched shareholders. In February, Congress passed and Mr. Trump signed a budget that boosts federal spending by nearly $300 billion over the next two years.
As those two measures push up business and household spending, U.S. imports should climb. Indeed, the spillover of American fiscal stimulus is a major reason for the IMF’s upbeat global outlook. For the U.S., this is a good thing: With unemployment at 4.1% the U.S. doesn’t have enough spare workers to meet all the new demand so imports are a safety valve against overheating. It’s one of many reasons economists don’t get worked up about trade deficits: They beat the alternative of less investment and maybe a recession.
Not so Mr. Trump who sees trade as zero-sum game and deficits as proof the U.S. is losing. His trade agenda is geared to correcting that: renegotiating the North American and Korean free trade agreements, tariffs on steel and aluminum, and threats to impose tariffs on $150 billion worth of Chinese imports. Yet these measures would likely have at best a negligible effect, if any, on the trade gap. Tariffs will redirect some U.S. steel orders to domestic from foreign mills, but many imports have no ready American substitute. Meanwhile, some sales may be lost by American companies that have to pay more for imported inputs or are hit by retaliatory tariffs in their export markets.
Correcting the deficit with one country or in one product is often pointless because the shortfall may simply reappear elsewhere. Indeed, the shale revolution has helped slash the single biggest contributor to the deficit by boosting exports of oil and slashing imports. Yet the gap in all other commodities has grown by more than enough to offset that benefit.
Permanently reducing the U.S. trade deficit requires some combination of the U.S. saving more and other countries saving less, a tall order because saving is heavily driven by structural factors such as aging, the social safety net and the availability of credit help. For many years China bolstered domestic saving by holding down its currency and controlling capital inflows, effectively restricting how much Chinese households could consume. But it hasn’t lately, contrary to Mr. Trump’s tweet Monday that China was playing a “devaluation game.”
Permanently higher budget deficits make trade deficits worse by diminishing national saving. Larry Kudlow, Mr. Trump’s chief economic adviser, in an interview with The Wall Street Journal disputed the link between the budget and trade deficits. But in a recent report economists at Goldman Sachs studied the historical record and found that all else equal, every $100 boost to the budget deficit because of policy decisions (as opposed to economic developments such as a recession) raises the trade deficit by $35.