That's Trump's "fault" in that his policies have made the economy stronger.
If a country has an insufficient amount of savings to finance their consumption and investment, as America has, they have to import capital from abroad. The only way to finance capital inflows is to have trade deficits. And if you have a trade deficit and the economy accelerates, the trade deficit will widen.
This is Economics 101. People who think trade deficits are inherently bad don't understand basic economics.
If a country has an insufficient amount of savings to finance their consumption and investment, as America has, they have to import capital from abroad. The only way to finance capital inflows is to have trade deficits. And if you have a trade deficit and the economy accelerates, the trade deficit will widen.
This is Economics 101. People who think trade deficits are inherently bad don't understand basic economics.
President Trump set his sights on reducing mammoth U.S. trade deficits. In the coming week, the Census Bureau will likely report the U.S. last year registered the largest trade deficit in its history.
How that happened is a lesson in the economics of imbalances. In this case, the president’s tax policies were as much in play as his trade policies. Large fiscal deficits had the side effect of enabling businesses and consumers to purchase more goods from abroad, driving down overall U.S. saving and driving up the trade imbalance.
“The evolution of the trade balance over Trump’s first two years is a good illustration of the basic principles that led most economists to predict the trade deficit would continue to widen with Trump’s policies,” said Brad Setser, a senior fellow at the Council on Foreign Relations. ...
The fiscal stimulus had two effects. First, it provided an abrupt jolt to U.S. consumption. Companies imported more to satisfy the demand. U.S. imports averaged 24% of total consumer spending between 2000 and 2016, meaning every $100 of new consumption translated to roughly $24 of imports. If U.S. factories and service providers can’t ramp up production, even more of that money might flow abroad. In 2018, imports were nearly 27% of consumption.
Second, the fiscal boost to the U.S. economy happened when much of the rest of the world was slowing. That contributed to an environment in which the Fed was raising interest rates and the dollar was strengthening. When the dollar is strong, it’s cheaper for Americans to import and more expensive for the rest of the world to buy U.S. exports, widening the trade gap.
Why Trump’s Effort to Narrow the Trade Gap Has Flopped So FarHow that happened is a lesson in the economics of imbalances. In this case, the president’s tax policies were as much in play as his trade policies. Large fiscal deficits had the side effect of enabling businesses and consumers to purchase more goods from abroad, driving down overall U.S. saving and driving up the trade imbalance.
“The evolution of the trade balance over Trump’s first two years is a good illustration of the basic principles that led most economists to predict the trade deficit would continue to widen with Trump’s policies,” said Brad Setser, a senior fellow at the Council on Foreign Relations. ...
The fiscal stimulus had two effects. First, it provided an abrupt jolt to U.S. consumption. Companies imported more to satisfy the demand. U.S. imports averaged 24% of total consumer spending between 2000 and 2016, meaning every $100 of new consumption translated to roughly $24 of imports. If U.S. factories and service providers can’t ramp up production, even more of that money might flow abroad. In 2018, imports were nearly 27% of consumption.
Second, the fiscal boost to the U.S. economy happened when much of the rest of the world was slowing. That contributed to an environment in which the Fed was raising interest rates and the dollar was strengthening. When the dollar is strong, it’s cheaper for Americans to import and more expensive for the rest of the world to buy U.S. exports, widening the trade gap.