US trade deficit soars to record high

US trade deficit soars to record high

By Luke Vargas   
Published
Courtesy: U.S. Bureau of Economic Analysis
Courtesy: U.S. Bureau of Economic Analysis

"The trade deficit is grossly misunderstood. If President Trump really is focused on economic growth, he should be welcoming these big trade deficits.”

NEW YORK – The monthly U.S. trade deficit ballooned to a record $59.8 billion last December, according to new data released Wednesday.

Christine McDaniel of the Mercatus Center at George Mason University says that should come as no surprise, given that the U.S. runs a low saving rate and a very high consumption rate compared to other large economies like China.

“History shows that in times of U.S. economic growth we tend to run higher deficits just because U.S. consumers and businesses import a lot of their consumption.”

McDaniel served on President George W. Bush’s Council of Economic Advisors and says she often needed to convince White House officials not to see the trade deficit as the measure of good trade policy.

Trump’s obsession with the trade deficit is a different story, and he’s latched onto the deficit itself as a root cause of economic problems. And by doing that, McDaniel says Trump opens himself to criticism over something not fully under in his control.

“I mean he kind of brought all this on himself. One reason I think we’re all so focused on the trade numbers is because of President Trump’s focus on the trade numbers. The trade deficit is grossly misunderstood. If President Trump really is focused on economic growth, then he should be welcoming these big trade deficits.”

But at the end of the day the U.S. does need to keep growing exports.

Thomas Duesterberg, a senior fellow at the Hudson Institute, says in the long run that means continuing to sell American technology to China.

“It is not easy to break into that market. They steal our technology, they subsidize their own industry, and it’s just in general a hard place to sell into.”

Removing those barriers to the Chinese market is a top goal of Trump’s trade agenda, and Duesterberg thinks the new deficit figures will recommit U.S. negotiators to driving a hard bargain with Beijing.

“We need to better protect intellectual property and better open the Chinese market to competition from our producers, or otherwise we’re going to lose the high-technology products which are the backbone of growth in the United States.”

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