Trump's focus on the US trade deficit bewilders economists

Behind President Donald Trump's decision to hit some of America's largest trading partners with stiff tariffs is his fixation on the trade deficit that the United States runs with other nations. But many economists say that is a poor metric for judging the quality of a trade relationship.

- ANA SWANSON

The steep tariffs, which were to go into effect on nearly 60 trading partners on Wednesday, were calculated based on bilateral trade deficits, or the gap between what the United States sells to each country and what it buys.

Trump has long viewed that gap as evidence that America is being "ripped off" by other countries. He argues that other countries' unfair behaviour has made trade so skewed and that the United States needs to be able to manufacture more of what it consumes. But economists argue this is a flawed way to approach the issue, given that bilateral trade deficits crop up for many reasons beyond unfair practices.

"It's totally silly," Dani Rodrik, an economist who studies globalisation at Harvard University, said of Trump's focus on bilateral deficits. "There's no other way to say it, it makes no sense."

Some economists do agree with the Trump administration that America's overall trade deficit with the rest of the world reflects a problem for the US economy, because the United States is so dependent on manufacturing elsewhere, including in China. But others don't see it as an issue. And nearly all economists say that focusing on imbalances from country to country can be highly misleading.

Last year, for example, the United States ran bilateral trade surpluses with 116 countries globally. It ran bilateral trade deficits with 114 countries, according to World Bank data.

Often these relationships just follow the flow of trade, without suggesting much about a country's trade practices overall. Matthew Klein, who writes about economics for The Overshoot, points out that the United States runs a trade surplus with Australia because it sends out lots of machinery, transportation equipment and chemicals. Australia runs a trade surplus with China, sending it iron ore, natural gas and gold. And China runs a trade surplus with the United States by sending it car parts, electronics and batteries.