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For years, President Trump has been obsessed with trade deficits, (incorrectly) viewing them as a good measure of which countries are “winning” and which are “losing.”

The United States has run a trade deficit for decades, thereby designating us a perennial loser in Trump’s worldview. He promised to turn things around by picking a few easy-to-win trade wars.

Instead, by Trump’s own measure, we’re bigger “losers” than ever before. The trade deficit just jumped to its largest size in a decade. Even worse: Our deficit in goods, which Trump for some reason emphasizes most, just hit its largest level ever.

There are a few takeaways from this news, including that trade was probably a bigger drag on growth last year than previously forecast. But the bigger question is this: Why exactly is the trade deficit expanding when Trump promised it would shrink? The answer largely (though not exclusively) has to do with Trump’s own economic policies.

To be clear, trade deficits — whether bilateral or otherwise — are not necessarily bad, nor are they a sign that we’re being somehow “cheated” by other countries. They reflect broader trends in the economy, including savings and investment rates.

Small or shrinking trade deficits are also not necessarily a measure of a healthy economy; in fact, as Bloomberg News’ Shawn Donnan points out, the year the U.S. trade deficit shrank the most was 2009, which was not exactly a blockbuster year for the economy. We were at the end of the Great Recession then, and, because the economy was bad, Americans bought less stuff from abroad.

Today, the U.S. economy is healthy, with economic growth relatively robust. This is partly because of the fiscal stimulus Trump has been pumping into the economy, through both his tax cuts and federal spending hikes. Consumers have more money to spend, which means they demand more stuff, and companies have ramped up their imports to satisfy that demand.

Simultaneously, other countries — including China and members of the European Union — have not been doing so hot.

With the U.S. economy doing well while other economies are faltering, and the Federal Reserve raising rates, the dollar has strengthened, making foreign products look cheaper and making our exports more expensive (i.e., less competitive) in other countries.

That, too, leads to higher trade deficits ... and it’s one of many reasons Team Trump might want to cool it with the schadenfreude about other countries’ economic woes.

So in some ways then, Trump’s preferred metric of “winning” is a victim of his own fiscally driven economic success. But it’s also a victim of his trade policy failures.

He has picked trade wars the world over, with friends and foes alike. He has also threatened even more tariffs, including an additional hike in tariffs on Chinese goods, a new “national security”-driven duty on auto imports, etc. These actions and threats have led to some predictable consequences.

One is that U.S. companies have stocked up on some imported goods to beat the tariffs, which increases imports in the short run. Higher imports equal bigger trade deficit.

Another is that other countries have levied their own retaliatory tariffs on our own products — most famously, red-state goods such as soybeans and bourbon. So there has been less demand for U.S. exports. Lower exports also equal bigger trade deficit.

Trump has pledged that once his brilliantly negotiated deals go through — the new North American Free Trade Agreement gets ratified by Congress, China fully capitulates to all his wildest demands, the European Union and Japan suddenly decide to buy more of our cars, etc. — our balance of trade will turn around.

There’s reason to be skeptical, however, and not only because some of these objectives seem like fantasies.

Even the ones that look more plausible, such as the implementation of the new NAFTA, seem unlikely to move the needle. After all, the new NAFTA looks an awful lot like the old NAFTA, plus some language cribbed from the Pacific trade pact Trump pulled us out of.

In fact, the most significant change in the new NAFTA deal involves new content rules for autos, which are intended to lead to more manufacturing (and manufacturing jobs) in the United States.

But as trade experts have pointed out, these new rules may be so costly to comply with that they could have the opposite of their intended effect, leading manufacturers to source less rather than more content from North America.

Which could mean a boost to auto and auto-parts imports, which would contribute to ... you guessed it ... a wider trade deficit.

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Catherine Rampell’s email address is Follow her on Twitter, @crampell.


(26) comments


Homey, that’s why we use quotation marks. You should be arguing with the WSJ, they produced the facts and as you seem to be acknowledging, the facts are impossible to change. What seems to come the closest to change is deflection. Maybe you should google some of Krugman’s predictions regarding Trump’s on the economy. Market to drop thousands of points, GDP will not ever reach a 3 percent, ever, just to name a few. The thing Krugman will never live down will be Enron, the largest financial disaster in the US.


Here's what Jordan Weissmann, Slate’s senior business and economics correspondent, has to say about Trump's trade war and it's effect on the economy. " In practice, it turns out that Trump was wrong and his critics were right. Both research teams found that American businesses paid the full cost of the tariffs, and likely charged consumers more as a result, just like the naysayers expected. " (


new2, you continue to prove yourself to be a Class A nitwit. The quotes that appeared in the extract from the Wall Street Journal you tried to pawn off as something of your own construction were quotation marks part of that extract. YOU did not put the quotation marks in. You tried to pump that little tidbit like you were the author of it. That is called plagiarism. I do not regularly read Paul Krugman. I am guessing that you do not, either. I think I am making a pretty educated guess that everything you know about Paul Krugman is something you picked off of a right-wing "alternative media" bellyache about him. If not, you would instead of just settling for accusations, you would provide actual instances of what you say Krugman has said.


Krugman was an advisor for Enron and it ended up as the largest financial disaster in America. You do not have to know much to know that and this is your authority, Paul Krugman. You should maybe read him a little more regularly before you spout off to his philosophy, everything he predicted was wrong. Don't be afraid, google it yourself.
Here is a couple for you.
ownership plans.



These are a few gems from Krugman, Pelosi, Larry Summers and others and we sure didn't want to leave Mitt Romney's predictions out.
If you need more, let me know. I guess these must have been plagiarized by someone, still there facts. With your bold statement about Krugman it really is quite apparent you do not follow him, not to worry, no one else does either.
Mark Cuban predicted a 2000 point drop in the market but he since has said, I was just wrong.

The left was certain that exactly the opposite would happen with a Trump presidency. To borrow a recent phrase from House minority leader Nancy Pelosi, Trump's policies would cause "Armageddon" for family finances, the American economy, and the stock market.

Keep all this talk of economic meltdowns and financial market doomsday in mind the next time you hear a news commentator say that "most economists" believe that Trump's policies won't work, or "mainstream economists" believe Trump doesn't know what he is doing. When it comes to Trump, his critics so far have almost all been not just wrong, but dead wrong.

Here are some of the greatest hits, gleefully compiled from the media over the past 18 months or so.

"Donald Trump's first gift to the world will be another financial crisis." Headline in the U.K. Independent. "(He) gives every impression that he will soon be hustling America — and possibly the entire world — in the direction of another catastrophic financial crisis." Same article.

"I have no stocks. I advise people not to invest in the stock market, not now. Way too dangerous." Film maker Michael Moore, August, 2017.

"It really does now look like President Donald J. Trump, and markets are plunging. When might we expect them to recover? A first-pass answer is never… So we are very probably looking at a global recession, with no end in sight." Paul Krugman of the New York Times the day after the election.

No Hidden Agenda: Get News From A Pro-Free Market, Pro-Growth Perspective

"Trump's domestic policies would lead to recession." Former GOP presidential candidate Mitt Romney, March 2016.

"If Trump wins we should expect a big markdown in expected future earnings for a wide range of stocks — and a likely crash in the broader market (if Trump becomes president)." Eric Zitzewitz, former chief economist at the IMF, November 2016.

"Under Trump, I would expect a protracted recession to begin within 18 months. The damage would be felt far beyond the United States." Former Clinton and Obama chief economist Larry Summers, June 2016.

"Trump would likely cause the stock market to crash and plunge the world into recession." Simon Johnson, MIT economics professor, in The New York Times, November 2016.

"Citigroup: A Trump Victory in November Could Cause a Global Recession", Bloomberg Financial News headline, August 2016.

"I have never seen an election in which the markets have so strong of a view as to what was good and bad about the outcome. And what you saw was the markets rallying yesterday because of the FBI thing on Sunday. And the reason I mention this particularly is if the likely event happens and Trump wins you will see a market crash of historic proportions, I think…The markets are terrified of him." Steve Rattner, MSNBC economics guru and former Obama Car Czar, October, 2016.

"Wall Street is set up for a major crash if Donald Trump shocks the world on Election Day and wins the White House. New research out on Friday suggests that financial markets strongly prefer a Hillary Clinton presidency and could react with panicked selling should Trump defy the polls and deliver a shocking upset on Nov. 8." Ben White, Politico, October 2016.

And finally, and most unambiguously:

"A President Trump Could Destroy the World Economy", headline of Washington Post editorial, October 2016.

Just for the record, the world economy is as strong today as it has been in at least a decade, as the Wall Street Journal recently reported. Now the left has to engage in logical contortions to explain how the red hot American economy is really a result of Obama policies — every which one Trump has systematically been at work dismantling.

As I've acknowledged many times, the roaring stock market and the surging rate of growth of the economy (which is now estimated at 3.5%, up from 1.6% in Obama's last year in office), could turn against Trump in the months and years to come.

It's quite possible that the market exuberance over Trump's deregulation and tax cut policies have run too far ahead, though I'm predicting 3% to 4% growth for 2018 with the Trump tax cut kicking in.

But what is certain at this point so far in Trump's presidency is that anyone who sold stock on the basis of predictions by liberal "experts" like Larry Summers or Paul Krugman or Steve Rattner missed out on a 30%-plus surge in their financial wealth. At some point the market will take a tumble and these discredited gurus will shout "see."

We would have so much more respect for these pundits if they would just do a mea culpa and admit that they were wrong about Trump and his policies. Maybe the businessman knows more about how the world really works than the chattering class. No — not maybe, definitively.


Since you are busy Googling and continue to publish the things you cut and paste here as though you actually wrote them, I Googled Paul Krugman and his history with Enron. I found this account of it, written by himself, which I tell you to assure you I did not, like you, plagiarize the material:

"Some people have accused me of an ethical lapse because I served briefly on an Enron advisory board in 1999 - even though I disclosed that relationship the only time I wrote about the company (rather favorably) for Fortune, back in May1999, and again the first time I wrote about the company (in a highly critical article) for the New York Times, which I did in January 2001. Since then I've been pretty hard on Enron, to say the least: I criticized the firm's role in the California energy crisis, and have not been kind as the firm's own problems have surfaced.

"By the way, here's the piece I wrote in Fortune. It looks a bit naive now, but it's a love letter to markets, not to Enron.

"So what was my relationship with Enron? I was offered a $50,000 fee for a year's participation in the advisory board, which would entail attending and presenting at two meetings, each of which would extend over two days. The year I was on the board only one meeting took place; the other was canceled because of weather.

"These meetings were not about Enron business, nor were they about policy in areas closely related to Enron business; basically they were seminars on world affairs. From my point of view this was much like a paid speaking engagement, of the kind that is common for academic economists, at least those who work on issues that bear on matters of business interest, like the state of the world economy. The only difference was that in effect I had agreed to deliver several talks, and join in an extended discussion of other peoples' talks.

"At the one meeting I attended, I talked about the Asian financial crisis, then still in full swing."

So there you have it, new2. As you suggest, apparently it was Krugman's horrible advice to Enron that brought that company down. Right from the horse's mouth. You, coming from the opposite end of the horse, want to believe that, anyway.


What a incoherent post. You are frantically trying to somehow justify the stupidity of your earlier comments with more stupidity. Remember the old saying , "if you find yourself in a hole, stop digging". You should give it a try.


I have read several books by Krugman in the past. He was chosen for the most prestigious award in economics, The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel informally called the Nobel Prize in Economics, by his peers for research into New Trade Theory and New Economic Geography. He was a professor in the economics department at Princeton, rated as the #1 economics department in the country. Seven of their faculty members have won the Nobel Prize. Ben Bernanke was a professor in the department with Krugman before he was appointed Chairman of the Federal Reserve Bank. So in summary, Krugman is a very knowledgeable economist who thinks that Trump does not know what he is doing. Conservatives hate Krugman because he does a thorough job of pointing out the hypocrisy and stupidity of much of the conservative economic philosophy.


new2Lax - You are still off base... Obama had a Republican Congress to deal with for much of his time in office. They controlled the purse strings. I believe that anything short of what Obama did to keep us out of depression would have put us there. Again, no thanks to the Republican party and their mismanagement of the economy under Bush and their refusal to work with Obama afterward.


Well both are a problem but we can start with the one Obama was involve with, basically spending 10 trillion dollars he didn’t have. That was more than all previous Presidents combined with little to show for it. Trump by all measures is doing more with less, just think if he would be allowed to double the amount, like Obama did.
Now for the trade deficit, nothing here to discuss, Trump got them in line by leveling the playing field. This is all you need to know, Trump good for economy, Obama,not so much


Only someone as twisted as you could come to that conclusion and somehow think it has anything to do with the column you are commenting on. Never mind your conclusion is contrary to some of the greatest minds in the field of economics. The Dunning–Kruger effect is in full display here by you. I am sure your back ground in HR makes you think you know what you are talking about. I make no claims to economic expertise so I bow to the experts. I'll let Nobel Prize winning economist Paul Krugman speak for me, and I quote, "Trump is completely wrong about what causes trade deficits in the first place. In fact, his own policies have provided an object lesson in the falsity of his vision. In the Trumpian universe, trade deficits happen because we made bad deals — we let foreigners sell their stuff here, but they won’t let us sell our stuff there. So the solution is to throw up barriers to foreign products. 'I am a Tariff Man,' he proudly proclaimed. The reality, however, is that trade deficits have almost nothing to do with tariffs or other restrictions on trade. The overall trade deficit is always equal to the difference between domestic investment spending and domestic saving (both private and public). That’s just accounting. The reason America runs persistent trade deficits isn’t that we’ve given away too much in trade deals, it’s that we have low savings compared with other countries." As far as deficits go, Krugman has this to say. "In any case, at this point it’s undeniable that their fire-and-brimstone debt rhetoric was nothing but a pose, an attempt to weaponize the deficit as a way to block and undermine President Barack Obama’s agenda. The moment they had a chance, the very politicians who grandstanded about the need for fiscal responsibility rammed through a huge tax cut for corporations and the wealthy — a tax cut that is the main reason for the exploding budget deficit. Oh, and the tax cut has utterly failed to deliver the promised investment boom. Companies didn’t use their giant windfall to build new plants and raise productivity, they used it to buy back a lot of stock, passing the gains on to wealthy investors." In conclusion Krugman says the following. "Trump’s twin deficits show that his party has been lying about its policy priorities, and that he is completely clueless about his signature policy issue. Luckily, a great nation like America can survive a lot, including dishonesty and ignorance at the top."


You picked a good one to quote, I'll give another.
"I predict that in the years ahead Enron, not Sept. 11, will come to be seen as the greater turning point in U.S. society." It's one of our all-time favorite quotes, and it was published 10 years ago this Sunday. As former Enron adviser Paul Krugman might say, this statement is false. Krugman was on the advisory board of Enron, the largest financial disaster in America. Please.


Well, I will give you credit for one thing, new2. You know how to cut and paste the article from the Wall Street Journal up to the point where you have to pay more to read the entire article. But you need to learn how to acknowledge that you are not saying these things yourself, that you are cutting and pasting something that you Googled. Otherwise you can be fairly accused of plagiarism. Your "facts" in your 8:04pm post are, typically, totally fraudulent.


Yeah Krugman was briefly on the board at Enron. He was paid to advise on the Asian financial crisis on which he was as expert. He attended only one meeting and presented a talk on this subject. He was not involved in any other way with Enron, and he quit shortly after the presentation. He was paid $50,000 which is in line with what other experts were paid for their advise. So other than that criticism what exactly is wrong with what he said? You are the economist not me. My area of expertise is physics and engineering. Is his explanation of what causes a trade deficit wrong, because I have read the same thing in numerous sources. Here's just one of many references to it ( What about the tax cut. I have not read much good news about that. It has raised the national debt. It is not doing any of the positive things that the GOP promised. It did increase the stock market due to stock buy backs. Again helping mostly the wealthy. It has not helped the middle class, It has only helped those who need help the least. So I know you are a smug guy, but just explain to all of us who were not big HR guys in Minneapolis how Trump is a wizard at boosting the economy for all Americans.


PhysicsIsFun - I wish
new2Lax would come back and try to answer your 11:17 post. (I wish he would change his name too. He's not "new" anymore). Or, how about DMoney? Care to take a stab at Physics post?


Sure: My economic situation has been steadily improving. I don't credit Trump or Obama. I credit the hard work and efforts of my wife and myself, along with living in a country with a capitalist economy.


Oops. Sorry, Physics, I quoted Krugman vis a vis his Enron "experience" back to new2 before seeing you had already done the work to expose new2.


It sounds like Obama was following Krugman's advice as well. It appears he knew absolutely nothing about an economy also. GDP struggled to reach 1%, increased the deficit to a point it eclipsed all prior Presidents. How was that good, what would you say if Trump also doubled it. I guess Obama error on the shovel ready jobs point as well. Remember Obama was there for eight years. The GDP is now exceeding 3%, by the way Krugman said it would and could not, google it. This is why you rarely see Krugman giving advice, other than maybe the failing NYT's.
Economists agree: Trump, not Obama, gets credit for economy. The polls also have Trump responsible for the economy. Luckily no one listens to Krugman. Well maybe you.


Obama started in the hole thanks to Bush and Republicans. Like everything else in his life Trump started on third base and thinks he hit a home run. Which economists agree that Trump gets credit for the economy? That is totally hilarious.



New Exlax has not a clue that trade wars do,in fact have consequences.
Tariffs do too.
Ever heard of Wisconsin??? The downside, of electing a no experience so-called "president."


Walker resurrected the economy in WI. That's a fact.


Gosh. Who would have thought that international trade could be as complicated as health insurance? I guess not Donald Trump. His problem is that once he discovers that his suppositions are all wrong, he has no interest in learning what the reality is, because he can just distract from reality and his base supporters, like new2, lap it up, no questions asked.


I wonder which position this loon would choose if she had the choice of being on the high side or low side of trade deficits. As for running a deficit, I guess there is no need to worry until we reach the Obama deficit numbers, 10 trillion seemed to be okay. That doubled all prior Presidents combined. So by using that measure, Trump should be allowed 20 trillion with no questions asked. I personally think he will easily keep it under 18 trillion in the next 6 years.


Are you talking about the trade deficit or the deficit? You know they are different things right? Maybe you should rethink your comment with that in mind.


hard to make sense of new2 comment. I don't think he does know what the different deficits are.


Trump wasn't coming out of The Great Bush Recession. Thank goodness Obama didn't allow it to get worse. Republicans can't be trusted with the economy other than what they manage to do for the rich. Hoover, the Bushes, even Reagan had a recession. But one thing you don't hear much about is the terrible economy that Nixon and Ford left for Carter and the American people. THIS was an economy that could have and should have been better prepared for. So, new2Lax... Why do deficits only matter with a Democrat in the White House? Why isn't Trump doing a better job of addressing our economy and the deficits?

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