Trade Truths Will Outlast Trump

Trade was central to Donald Trump’s 2016 campaign. He saw trade as a win-lose, zero-sum proposition, blaming trade deficits for deindustr...


Trade was central to Donald Trump’s 2016 campaign. He saw trade as a win-lose, zero-sum proposition, blaming trade deficits for deindustrializing the American heartland, calling the North American Free Trade Agreement “a disaster,” and condemning China for unfair trade practices. He thought getting tough on trade would give him the leverage to get better deals.

President Trump called himself a “tariff man” and imposed 25% levies on imported steel and aluminum while launching a trade war against China. He pulled out of the Trans-Pacific Partnership, renegotiated Nafta, and threatened to leave the World Trade Organization.

Mr. Trump’s defeat provides an opportune moment to reassess his trade policy. After four years, what have we learned? Many things, but especially that old economic truths still have value:

Tariffs don’t reduce the trade deficit. If a country imports more than it exports, it would seem that tariffs would slash imports and help close the gap. But it doesn’t work that way. Economists have long pointed out that the trade deficit is driven by macroeconomic factors, particularly international capital flows. The strong pre-Covid economy, along with the administration’s expansionary fiscal policy, ensured that spending remained high and imports continued to pour in. The result: The merchandise trade deficit was $864 billion in 2019, more than $100 billion higher than in 2016.

Why didn’t tariffs help close the gap? Not unexpectedly, other countries retaliated by imposing stiff tariffs on our exports. And when the administration placed tariffs on China, imports were simply diverted to Vietnam and other foreign suppliers without reshoring production.

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Newsrust: Trade Truths Will Outlast Trump
Trade Truths Will Outlast Trump
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https://www.newsrust.com/2020/11/trade-truths-will-outlast-trump.html
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