If the trends of the past year and economists’ expectations hold true, trade data to be released Wednesday will show the US’s deficit in goods and services with the world topped $600 billion in 2018. That means Trump’s presidency will have seen the US trade shortfall — the main metric by which his judges countries to be winning or losing — grow by more than $100 billion.
Put another way, by Trump’s own benchmark the US is 20 percent worse off than it was at the end of 2016, just before he took office. Economists don’t like to dwell too much on the US trade balance. It is, by and large, an accounting measure that often moves in directions inverse to the health of the economy.
The US trade deficit’s biggest contraction on record came in 2009 when it shrank by more than $300 billion in a single year as a result of the recession then under way — and the resulting collapse in US demand for imported goods. (As a result largely of that slump the US’s goods and services deficit with the world contracted by more than $200 billion over President Barack Obama’s eight years in office.)
“This is a major reason why economists say, ‘You really don’t want this as your scorecard,’’’ said Phil Levy, a former senior economist for trade with President George W. Bush’s Council of Economic Advisers. “It’s not an accident. When things are booming we consume more imports.’’
Despite the name, trade deficits tend to have less to do with trade policy than broader macroeconomic policy. The main long-term driver of persistent trade deficits since 1975 has been the gap between the US’s low savings rate and its attractiveness as an investment destination, fueled partly by the dollar’s role as the world’s reserve currency. That in turn leads to a stronger dollar, which in itself helps increase the trade deficit by lowering the real cost of imports and increasing the local-currency cost of American goods in overseas markets.
In the first 11 months of 2018 the US deficit in goods and services with the world increased $52 billion, or about 10 percent, from the same period in 2017. If that pattern holds in the December data released Wednesday — and economists surveyed by Bloomberg predict it will — the deficit will have widened to about $610 billion in 2018. In 2016 it was $502 billion.
The immediate drivers of the surge in the trade deficit under Trump have been the fiscal expansion resulting from the tax cuts he pushed through Congress and the stronger dollar that resulted, partly from the juiced economy that expansion helped create.