Subscribe to Here’s the Deal, our politics newsletter for analysis you won’t find anywhere else.
Thank you. Please check your inbox to confirm.
The economy, and the U.S. trade deficit specifically, is a major focus of President Trump’s agenda, driving his decision to impose tariffs on Chinese goods. But the latest data indicates the trade gap is actually growing, to its highest level in over a decade. Amna Nawaz talks to the Brookings Institution's David Wessel about rising American consumption and a healthy way to manage the deficit.
President Trump has made the trade deficit a central focus of his agenda. That's included a major escalation of tariffs and engaging in trade wars, especially with China.
But the latest figures for the past year show the overall U.S. trade deficit keeps growing. In fact, it rose by 12 percent, compared to 2017, and the trade gap is now the widest it's been since 2008.
David Wessel of the Brookings Institution is back with us to help unpack what's behind those numbers and the larger picture.
David Wessel, welcome back to the "NewsHour."
So, help us understand, how did this number get so high? What's contributing to it?
Well, basically, President Trump's tariffs and the retaliatory tariffs by our trading partners didn't help.
But the major story here is that our economy is stronger than some of the other economies of the world. Our demand for their stuff is growing faster than their demand for our stuff. And so the trade deficit, which is the difference between our imports and our exports, is widening.
So, the president has repeatedly talked about that gap and called it unfair, and he said he was going to use those tariffs you just mentioned to try to close the gap.
We see it's gone the other way right now. But the studies we have seen so far have showed us a little bit of what the effect of those tariffs have been. What do we know about that?
Well, first of all, the president actually deserves some of the blame for this, because, when you cut taxes a lot, and you stir the U.S. economy, people buy more stuff. When our budget deficit gets bigger, that tends to widen the trade deficit.
What the president sometimes talks about is that somehow China is paying these tariffs. But these recent studies to which you refer are trying to figure out, when you have these tariffs, who gets hurt? Is it the exporting country or the U.S. consumers and businesses who are buying the stuff?
And their bottom line is, most of the burden is falling on us, the consumers and businesses of the United States, who are paying more for imported stuff because of the tariffs.
So, the burden is falling to us, but I'm also hearing you saying, because of this trade deficit and the numbers, it means we're consuming more than we produce. That suggests we have the cash and the ability to be able to do so.
So, what does the trade deficit say about the overall health or strength of our economy?
Well, sometimes, I think the trade deficit is overemphasized as a measure of the economy's health.
It does mean, as you say, that we're consuming more than we produce. We're lucky enough to be able to do that. It also means that we invest more than we save. We're borrowing a lot of the money to buy these imports.
But I think that the bottom line is that there are good ways and bad ways to get rid of a trade deficit. A bad way would be, we could have a recession. Then we can't afford to buy things.
A good way to get rid of the trade deficit would be for us to save a little more or for us to get a little more competitive, make better things, work more efficiently. So, it's a signal that we have work to do on that front.
So, David, does this number say to you that there's any reason for us to be concerned? Or, if it continues to grow, could there be reason for concern?
If it continued to grow, there would be reason to be concerned. At these levels, it's not so bad. The problem is, it's probably going to get worse, because the rest of the world is not doing very well. China is slowing. China's actually importing less from all its trading partners, not just from us.
And, today, for instance, the European Central Bank marked down its forecast for growth in Europe. That means they're going to be buying less stuff for us. So the trade deficit is going to get bigger. At some point, it could get dangerously large. But we're not there yet.
We're not there yet. We will continue to track it then.
David Wessel of the Brookings Institution, thanks for your time, as always.
Watch the Full Episode
Support Provided By:
Additional Support Provided By: