Isn’t it ironic? Why the US trade deficit jumped to a record-high under Trump

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03/07/2019 | 03:16 pm
Donald Trump has made the issue of the trade deficit a priority for his presidency. But instead, it has risen to new levels. This is a hard blow for the president.

American businesses have sold more services, but when taking only goods into account, the trade deficit reached 891 billion dollars in 2018. With more than 10% in a single year, this is an absolute record. This doesn’t reflect well on Trump’s presidency:

To be fair to him, some would say that this increase was caused by factors that were not in his direct control – although many would disagree – such as the strong dollar and the global economic slowdown. Both of these factors have reduced appetite for American goods.

But for the most part, the trade deficit is a direct consequence of his policies. Donald Trump’s $1.5 trillion tax cut is partly responsible for this, as this increased purchasing power in the country. America got richer, but used its money to buy goods abroad.

A new attitude towards China

Another policy that had a big impact is, of course, the trade war he launched against China and to a lesser extent, Europe. The tariffs applied to $250 billion worth of Chinese goods not only slowed the growth of the world’s second economy, but also led China to place tariffs on several American goods, particularly on soybeans, making them even less affordable.

As a sign that Donald Trump is perhaps rethinking his strategy, he has softened his stance on China and postponed the application of new tariffs on $200 billion worth of Chinese products, while he continued negotiations to end the trade war.

The bottom line is that POTUS policies didn’t work the way they were intended, quite the opposite. Tax cuts fueled U.S. consumer demand when growth in the rest of the world was slowing, in part due to Trump’s trade war. This led the Federal Reserve to raise interest four times in a bid to stop the country’s economy from overheating, and as a consequence, caused the dollar to rise and made American goods expensive to foreigners, while foreign goods became cheaper for Americans. This situation was expected by many economists, but Trump has stubbornly kept his views that China and the European Union were “taking advantage” of the United States…
Romain Fournier
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