“The Trump administration never had a feasible plan for reducing the trade deficit,” explained Mary Lovely, a senior fellow at the Peterson Institute for International Economics. “Their 2017 tax cut ensured that the U.S. as a whole would continue to spend more than it produced, hence the need for a current account deficit. The tariffs on China reduced imports from China, but these were mostly replaced with imports from other sources.”
Deficit with China fell: Trump was successful in bringing down the bilateral trade deficit with China, as result of the tariffs he imposed on more than $350 billion worth of Chinese goods. Final figures show the trade gap with China totaled $311 billion in 2020, down sharply to the record high of $419 billion in 2018.
But as Trump tamped down on imports from China, U.S. companies turned to other foreign suppliers. The U.S. trade deficit with Vietnam, Thailand, Taiwan, Philippines, Malaysia, South Korea, Indonesia, Russia, France, Germany, Ireland, Italy and Switzerland were all higher in 2020 than in 2019. Imports from China also grew sharply in the second half of 2020.
Trump’s tariffs also imposed higher costs on businesses and consumers. U.S. Customs and Border Protection collected $74.4 billion in tariffs on imported goods during the 2020 fiscal year, which ended on Sep. 30. That was more than double the taxes that CBP collected on imports before Trump took office.
In addition, China, the European Union and a number of other countries retaliated against U.S. exports, including many farm goods. That had such a negative impact on farm income that the Trump administration provided more than $23 billion in aid to farmers for trade-related losses.
“When factoring in retaliation, the costs of this wrongheaded approach is measured in the hundreds of billions,” said Michael Smart, a managing director at Rock Creek Global Advisers, an international economic policy advisory firm.
The Trump administration argued that China was, in effect, paying the duties by reducing the price of the goods it ships to the United States. But a recent study by an economist at the Federal Reserve Bank of New York and two colleagues concluded that “U.S. tariffs continue to be almost entirely borne by U.S. firms and consumers.”
Trump’s “Phase One” trade deal: In a partial vindication for Trump, China has bought a huge amount of U.S. corn in recent weeks, including a single-day purchase of 2.1 million metric tons on Jan. 29 that was the second-largest on record.
But the Commerce Department data released Friday showed U.S. exports to China in 2020 were well below the goal set in Trump’s “Phase One” trade deal with the Asian powerhouse, even though they picked up sharply in the final months of the year.
Under that agreement, China is supposed to increase purchases of U.S. goods and services by $200 billion above 2017 levels over two years. That includes $76.7 billion in increased purchases in 2020 and $123.3 billion in 2021.
U.S. goods exports to China in January through December 2020 were $110 billion, about $20 billion less than in 2017. In addition, U.S. services exports to China were about $28 billion through the first three quarters of 2020, compared to $55 billion in all of 2017.
Coronavirus impact: Still, if not for the global pandemic, both the trade deficit with China and the overall trade deficit might have been smaller than it ended up being in 2020.
“Chinese producers recovered quickly and pumped PPE, electronics and other products into the global economy, including to the U.S.,” Lovely said.
The year ahead: President Joe Biden has also raised concern about the trade deficit, but not to the degree that Trump did. That may be fortunate for the new president because the same macroeconomic factors that drove the deficit higher during Trump’s tenure are still at play.
“As we look ahead to 2021, with the Biden administration moving forward on another stimulus, the U.S. economy forecast to grow more quickly in the second half of the year, the U.S. will import more and the trade deficit is likely to rise again. Slow recovery in other countries will weaken U.S. exports,” Lovely said.
— to www.politico.com