Bernstein (The Atlantic):
"...it’s not inherently a problem for a country to have a trade deficit. For example, a fast-growing economy pulls in more imports as it expands, which pushes a country’s international trade account toward deficit. In that context a trade deficit is good for the economy, allowing the country to consume and invest more than if it maintained balanced trade. This was the story in 2000 when, after four years of strong growth, the American economy had an unemployment rate of 4 percent and a trade deficit that amounted to 3.7 percent of GDP.
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What effect does all this have on American workers? Trade deficits, even in times of strong growth, have negative, concentrated impacts on the quantity and quality of jobs in parts of the country where manufacturing employment diminishes. [...] There is, for example, a lot of research confirming that de-industrialization in the Rust Belt is partly a result of the fact that America meets its domestic demand for manufactured goods by importing more than it exports. [...] And trade imbalances have repercussions far beyond the labor market. They can produce significant macroeconomic distortions, and those who view deficits as benign frequently overlook this. Most importantly, as Ben Bernanke noted over a decade ago, a trade deficit can have a role in producing financial-market bubbles and the devastation that’s caused when those bubbles burst. The problem arises when other countries suppress spending and investment, thereby boosting their savings rates and their trade surpluses. By the rules of basic accounting, those surpluses have to flow somewhere, and many flow into America. This further strengthens the demand for and value of the dollar, making American exports less competitive—and thus exacerbating the trade deficit. In the 2000s, these trade patterns helped provide cheap capital that, in tandem with inattentive regulators, inflated the housing bubble. Almost a decade later, the country is still recovering.
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The goal of trade policy should thus be to push back on U.S. trade deficits without distorting current trade flows. Large tariffs like the ones Trump has proposed won’t work, nor will preventing offshoring one company at a time, as he did with some of the jobs that the air-conditioning company Carrier was going to shift to Mexico. There are better ways to improve the U.S.’s trade balance—most importantly, the government could take steps to prevent America’s trading partners from manipulating their currencies to make their exports to the U.S. cheaper and the U.S.’s exports to them more expensive. "
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From https://foreignpolicy.com/gt-essay/understanding-trumps-trade-war-china-trans-pacific-nato/
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The president’s main obsession is with increasing U.S. exports and diminishing imports. In his mind, the trade deficit measures the extent to which other countries have been taking advantage of the United States. Economists have grown weary of pointing out his error, but I’ll do it again. Trade deficits are driven by macroeconomic factors. In particular, if a country has a high savings rate relative to investment, that country will send some of its excess savings to others by exporting more goods than it imports. China, Japan, and Germany—all with high savings rates—have trade surpluses. The United States—with low savings and high consumption—has a deficit.
The deficit, in other words, is mostly homegrown, and Trump’s economic policies are likely to increase it. A large tax cut and increases in government spending have temporarily boosted consumption and economic growth. To help meet the new demand, the United States has started importing more, further increasing the trade imbalance. As this trend continues in 2019, Trump will have to decide how to react—whether by lashing out at the U.S. Federal Reserve (Trump’s go-to scapegoat for all manner of economic issues), at other countries for their perfidious trade policies, or both.
The president is no different from his recent predecessors in saying he wants favorable trade deals. But if he’s actually embracing protectionism for its own sake, that would make him unique. Whereas previous presidents have raised trade barriers in difficult economic times, Trump has initiated them during a period when U.S. economic performance is strong and domestic industries are not asking for such help.
In his first year in office, Trump laid the groundwork for the tariffs that came in year two. Now the second act in this drama is about to begin. The president is unlikely to let his apparent penchant for protectionism go, particularly if the U.S. economy slows and the trade deficit remains stubbornly high. The global economy, and the postwar system of world trade in particular, should be prepared for more blows to come.
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