Economy

Trump’s Trade War Slows Exports, Widens the Trade Deficit

JM Ashby
Written by JM Ashby

A surge in exports led to a surge in economic growth during the second quarter of the year as companies raced to trade as much as they could before Trump's trade war took effect, but that window of opportunity is clearly over.

Following a brief dip as companies rushed their goods out the door, our trade deficit has reached the highest level since the beginning of the year during the month of July and appears poised to continue growing.

From the Wall Street Journal:

The trade gap in goods — services are excluded — rose 6.3% to $72.2 billion from a revised $67.9 billion in June, the government said Tuesday. That’s the highest rate since February. Economists were looking for the deficit to widen somewhat less, to $69.4 billion. [...]

There were widespread reductions in exports in July, which fell for the second month in a row. Exports of capital goods and consumer goods help pace the month’s losses. At the same time, the gains in imports were across the board, with the only monthly drop for consumer goods.

For all of President Trump’s focus on the trade deficit, it remains on a steadily widening trajectory. The trade gap is about 7% wider year-to-date compared with the corresponding period in 2017, said Oren Klachkin, economist at Oxford Economics. A strong U.S. economy is drawing in imports.

I highlight this not because I think it's a problem; I highlight it to demonstrate that the entire premise of Trump's trade war is lie.

Trump believes his trade war is going to reduce our trade deficit, but it's actually going to accelerate it. Americans still need shoes, shirts, and shampoo and they're going to pay more for those things under Trump's tariffs, but other countries don't necessarily need anything America produces that they can't produce themselves or source from other countries. And to illustrate this point, just observe Trump's bailout of American farmers who've seen the foreign market for their goods evaporate.

Our trade deficit is widening even while Trump's tariffs make foreign goods more expensive because our economy is aligned in such a way that makes us dependent on foreign goods.

Trump frequently and wrongly claims that tariffs will lead to other countries paying us money, but that's obviously not how anything works. The reality is Americans will simply pay more for the same goods they were buying before the trade war.

  • muselet

    “Trade wars are good, and easy to win.”

    True, but only for certain values of “good” and “win.”

    –alopecia

  • 1933john

    Trump’s hope: “Shit doesn’t hit fan before midterms”.

  • Badgerite

    So true. As with any business anywhere in the world, the cost of doing business is passed along to the consumer wherever that business is operating. In actual fact, it is the American consumer who will be paying the tariff by having to pay more for the goods they buy. Whatever foreign business pays into Federal coffers, will be offset by higher prices and inflation in our economy. Whats more, when you are the only country engaging in tariff wars with other countries, those other countries have options of trading with others and that will only dry up markets for US goods and commodities.

    • Draxiar

      And because of higher prices consumers won’t have as much money to buy things. This will cause a dip in purchases across the board possibly incurring layoffs or negating any gains in cost of living increases. I don’t know to what degree that may happen but all things in the economy are connected. Pumpkinhead treats it like it’s some sort of hockey goon throwdown rather than people’s livelihoods that are on the line. But he’s an asshole that we pay to go to his own resort on our dime which he makes money from. So how in the world could he possible care about people’s livelihoods?