Trump and the trade deficit
The shot could backfire
Updated on 03.02.2025 – 11:41 a.m.Reading time: 2 min.
Donald Trump demands that the US trade deficit should shrink. However, his solutions may change little in the balance sheet.
Donald Trump is very worried about the American trade deficit. That is why he declared it one of the most important problems in the United States at the beginning of his second term. The trade balance with Europe and China in particular is negative. Trump wants to compensate for this primarily with punitive tariffs. However, it is doubtful whether this works.
The US trade deficit is by no means a development of the past few years. This has been negative since the early 1980s. This means that the USA has been buying more goods and services abroad since then than they produce themselves. Since then, the United States has been the largest net debtor country in the world because they have accumulated more liabilities compared to the rest of the world than demands.
In 2023, the United States’ trade balance sheet balance was around $ 1.15 trillion. When Trump’s first took office, he was still at almost $ 800 billion. Trump and especially his consultant Robert Lighthizer have identified a problem in these numbers. They fear that the US economy is bleeding out because production is increasingly lost abroad and the Americans are increasingly buying from abroad than producing themselves.
Trump therefore wants to fight the numbers with tariffs. Because the import of foreign products becomes more expensive, the Americans should buy local products and companies are back to the United States, the US President hopes.
However, it is by no means certain that this strategy will improve the trade balance in a timely manner. Because the trade balance is also based on the capital that comes from outside to the USA. And as long as foreign companies invest in the United States, the balance remains negative.
If the trade balance is to be compensated for, significantly less capital must come to the USA. Customs, on the other hand, make the trade more expensive and reduce the trading volume. This harms everyone involved. As a rule, imports and exports fall evenly during customs introduction – the export surplus would continue to be available.
When America raises import duties, this can have a variety of effects. The higher customs duties in demand less foreign currency and the dollar enhances. This reduces the US export because products produced in the USA are becoming more expensive for the rest of the world. At the same time, higher prices for imported preliminary products lead to increasing production costs in the USA, also for export companies. This also makes their goods more expensive for other countries.
In order for the trade deficit to drop, the United States would have to become so unattractive for foreign capital that hardly anyone invests in the United States. However, this would not be advantageous for the economy in the United States.
Trump has also promised deregulation, streamlining the state and lower taxes. That would increase the attractiveness of the United States and cause foreign investments, which he also expresses. The result: The dollar enhances that Americans buy even more abroad-and the trade deficit is getting even greater.