Trump has made reducing the trade deficit “to zero” a primary goal of his trade policy, White House trade counselor Peter Navarro said Tuesday at a POLITICO event where he blamed imports for millions of lost jobs, thousands of factory closings and a grim trail of divorces, alcoholism, drug addiction and death among America’s working class.
However, that’s a slanted view of imports, which lower costs for consumers and U.S. manufacturers, thereby supporting jobs in the United States, said Ed Gresser, vice president in charge of trade at the Progressive Policy Institute, a Democratic think tank. It also ignores the role that technology has played in manufacturing job losses, he said.
In addition, even though the goods trade deficit now is regularly above $1 trillion, it remains relatively small as a percentage of the U.S. economy, which has continued to grow over the years. In fact, the trade deficit is most likely to decline “when the economy goes really bad,” said Gresser, from the Progressive Policy Institute.
“The biggest trade deficit reductions we’ve had in the 21st century were during the financial crisis in 2009 and the Covid pandemic in 2020,” Gresser said. “That type of experience is quite effective at reducing trade deficits, but it always comes with many fewer jobs and depressed economies. It does not come with numerous openings of factories.”
Gresser, an economist and former U.S. trade official, said Trump’s first term provided a real-world example of why more tariffs won’t reduce the trade deficit.
That’s because the level of government spending plays a huge role in the macroeconomic factors that determine the size of the trade deficit. The Republican-led Congress cut far more in taxes during his first term than Trump raised in new tariff revenue, causing both the U.S. fiscal deficit and trade deficit to rise, Gresser said.
However, even if Republicans perfectly matched the multi-trillion-dollar cost of extending the 2017 tax cuts with trillions of dollars of new tariff revenue, that would not reduce the trade deficit, since the government’s fiscal deficit would remain the same, Gresser said.
“If you’re raising tariff rates and reducing income tax rates, the main thing you’re doing is shifting taxation from wealthy people to hourly wage workers and their families,” Gresser said. “That’s going to raise the cost of goods and have a big impact on reducing tax bills for the wealthiest people. Your impact on trade balance, if they offset exactly, will be nil.”
