The former president’s campaign advisers say that if he returns to the White House in 2025, Trump would consider raising duties on all imports coming into the country, while slashing business taxes beyond the cuts he made in 2017 — steps he and his advisers argue will help rebuild U.S. manufacturing and create better-paying jobs at home. Some economists, however, predict the economic impact of those actions could offset each other, leaving the trade deficit largely unchanged.
Ed Gresser, an economist and former trade official in both Democratic and Republican administrations, said the main effect of Trump’s tax and trade plans for his second term would “be to lower living standards in the United States” by increasing the cost of goods for both businesses and consumers. “It would be significantly inflationary,” far more than the tariffs that Trump imposed during his first term on China and steel and aluminum products, he added.
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The Commerce report shows the U.S. trade deficit with Mexico totaled a record $152 billion in 2023. And car imports continue to be a driving force behind that deficit, despite Trump’s emphasis on boosting U.S. auto production. The USMCA included a number of tough new provisions targeting the Mexican and Canadian auto sectors for just that purpose — for example, raising the amount of regional content included in a vehicle made in Canada and Mexico for it to qualify for the lower U.S. tariff rate. The Commerce report, however, shows the auto and auto parts trade deficit with Mexico hit $130 billion last year, compared to $83 billion in 2017.
Similarly, the overall trade deficit with Canada reached $68 billion in 2023, although that was down from $80 billion in 2022. The U.S. had a $19 billion deficit in passenger car trade with Canada but ran a small overall surplus in auto and auto parts trade with its northern neighbor.
The statistics illustrate how little Trump and his team understood the U.S. economy and how tax and trade policy work, said Gresser, who is now vice president for trade and global markets at the Progressive Policy Institute, a think tank closely aligned with centrist New Democrats.
“They didn’t understand what the trade deficit really meant and therefore they were not able to reduce it,” Gresser said, noting that other economic factors like how much a country invests and saves have a far larger influence on the size of the deficit than trade policy.
The big tax cut Congress passed during the Trump administration cut U.S. savings and boosted U.S. spending, pulling in more imports from abroad, Gresser said. Trump’s tariffs on more than $300 billion worth of Chinese goods “squeezed” the trade deficit with that country but caused it to swell with other countries, such as Mexico and Vietnam, he added.
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U.S. auto sector employment has also grown under the USMCA, with help from additional government incentives provided by the Biden administration’s Inflation Reduction Act, said Scott Paul, president of the Alliance for American Manufacturing, a union-affiliated group that supported Trump’s renegotiation of USMCA.
“We’ve seen more factory announcements for auto and major auto part production coming to the United States than at any time over the last couple of decades that NAFTA was in effect, and so that clearly is a positive development,” Paul said.
However, U.S. auto industry employment was also rising during the later years of NAFTA and the recent increase in the number of those jobs looks like a return to that upward trend following a sharp drop during the pandemic, Gresser said.
