Asia & the Pacific Policy Studies
President Trump’s analysis of the persistent United States–China trade imbalance reveals fundamental misunderstandings of basic economics. During the 2016 campaign, candidate Trump made an important Big Promise with two facets: to bring back American jobs from other countries (especially China) and to eliminate the American trade deficit. But, as pointed out by Barack Obama in his farewell address, many of the American jobs were lost to factory automation, not to imports. Furthermore, if China’s central bank had pursued a less interventionist foreign exchange rate policy, most of the labor-intensive imports from China would have been produced in other low-wage countries, not in domestic factories. Finally, and most importantly, the persistent American foreign trade deficits (with many countries, not just with China) arise from the domestic imbalance between taxes and government expenditures. Unless this budget imbalance is dealt with, the foreign trade imbalance will necessarily continue.
Image: Whitehouse in the public domain