“We don’t have a surplus with anybody. We have the worst deals.”
— President Trump, remarks during a rally in Pensacola, Fla., on Dec. 8, 2017
The United States’ trade deficit with other countries appears to be a thorn in President Trump’s side. He has repeatedly characterized the United States as being on the losing end of the North American Free Trade Agreement and the Trans-Pacific Partnership (from which he withdrew the United States before TPP became a reality). NAFTA governs trade between the United States, Mexico and Canada, and the TPP was intended to facilitate trade between the United States and 11 other countries around the Pacific Ocean.
As soon as Trump took office, he announced the United States’ withdrawal from the TPP. While NAFTA still governs trade between the United States, Mexico and Canada, Trump has repeatedly suggested that he can — and will — negotiate better NAFTA terms for the United States.
His main argument against the two trade deals are soaring trade deficits, in which the United States buys more goods than it sells.
At a rally last month in Pensacola, Fla., he broadened his claims about that deficit, which he usually reserves for NAFTA, and declared that the United States doesn’t have “a surplus with anybody.”
This was at least the seventh time he’s made this statement as president, according to our database of Trumpian claims, and we figured it was time for a full-fledged fact check. We won’t hold our breath that he will drop this talking point, however.
According to the October 2017 report on international trade from the Bureau of Economic Analysis, released in December, the United States imported $244.6 billion in goods and services but exported only $195.9 billion, resulting in a trade deficit of $48.7 billion for the month. From January to October, the goods and services deficit increased $49.1 billion, or 11.9 percent, from the same period in 2016.
The United States runs its largest deficit with China: In October, the deficit increased by $2.1 billion to $31.9 billion for the month. From January to October, the trade deficit for goods alone equaled $308 billion. In 2016, the annual deficit totaled $347 billion.
The United States’ second largest deficit is with Mexico, valued at $59.7 billion from January to October.
The United States also runs deficits with several other countries, including significant ones with Japan, Germany and Vietnam, valued at $57.6 billion, $52.8 billion and $32.2 billion, respectively, over the same period.
Under Trump, the 2017 trade deficit for goods and services is on track to surpass the total deficit of 2016: $502 billion.
But despite the growing overall deficit and Trump’s claim, the United States runs a trade surplus of goods with several countries.
In addition, the United States routinely runs a trade surplus for services. From January to October 2017, the United States reported a roughly $203 billion surplus in services. Under Trump, however, the services surplus has declined from recent years. During the same period in 2016, the United States reported a surplus of roughly $207 billion. And in 2015, the surplus totaled $218 billion.
Trump’s statement, as is, does not hold up. It would be more accurate to say that despite a few trade surpluses, the United States has an overall trade deficit thanks to sizable imbalances in exports and imports among a handful of countries.
More important, Trump has repeatedly claimed that he could negotiate a better deal to bring the deficits down, but the data show that so far Trump has not made progress toward that goal. Still, his proposition raises an important question: Is bringing down the deficit as simple as negotiating better trade deals?
Let’s take a closer look.
The most significant source of the trade deficit in the United States is high rates of borrowing from foreign countries because of low domestic savings, according to a 2016 report on trade from the Congressional Research Service, which provides nonpartisan research data to Congress. The borrowing allows Americans to “enjoy a higher rate of economic growth than would be obtained if the United States had to rely sole[ly] on domestic savings,” which “boosts U.S. consumption and the demand for imports, producing a trade deficit.”
The CRS report notes that some policymakers see the large deficit with certain countries as the “unfair,” result of foreign trade policies. But while changes to those policies may have some effect on the trade balance, they would not bring down the overall U.S. trade deficit, because it “is largely a reflection of the level of U.S. savings.” Without changes to U.S. consumption and savings, the researches note, “an increase in U.S. exports would likely result in an increased demand for imports, and the overall U.S. trade deficit would likely remain relatively unchanged.”
Trump’s focus on the deficit as a matter of who buys or sells more simplifies the issue and obscures the fact that the overall deficit is largely driven by borrowing. But that does not mean some criticisms of the trade deficit are without merit. The CRS researchers point out that the trade deficit creates a “dual problem for the economy” — it generates debt that must be paid back in the long run; and current generations must pay interest on that debt.
To address this “dual problem” and reduce the deficit, the researchers suggest implementing policies that directly address trade policy as well as making changes to U.S. monetary and fiscal policies “aimed at U.S. interest rates, saving rates, budget deficits, and capital flows.”
Another key factor in the trade deficit is the strength of the U.S. dollar relative to foreign currencies. The strength of the dollar makes imported goods cheaper for U.S. consumers, which, in general, increases imports and decreases exports. And many countries have increasingly turned to the U.S. dollar as a reserve currency, meaning it is used by foreign governments in international transactions and investments. And this use of the U.S. currency further strengthens the dollar, making U.S. exports less competitive.
Robert E. Scott, a senior economist at the left-leaning Economic Policy Institute, said in a column that renegotiating trade deals alone would have little impact on these currency exchanges. (Scott penned the column after Trump cited Scott’s research on trade during a campaign rally in 2016.) Instead, Scott argues, the United States needs to directly intervene in the currency markets to address the misuse of U.S. currency by foreign governments, and thus help reduce the trade deficit.
The White House did not respond to a request for comment.
The Pinocchio Test
Trump said the United States does not have a trade surplus with any countries. But the nation runs a several-billion-dollar surplus for goods with several countries. And the United States has routinely sold more services than it purchases, resulting in a sustained surplus on the services side.
But surpluses aside, Trump also claims that he can turn the trade deficit around by negotiating better trade deals with other nations. But over the course of his first year in office, the trade deficit has increased. Indeed, as we have explained, his claim once again reveals how little the president understands about the key factors for the trade deficit.
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