The US trade figures for February that were released this week and showed a widening deficit.
President Donald Trump’s policies over the past year have been calculated to increase the size of the US trade and current account deficits.
One could easily say that the policy has essentially been focused on “Making China Great Again.”
A deficit financed tax cut was always going to widen the US trade deficit, as the American consumers have spent their new found cash on largely imported goods.
The Big Q: Does a current account deficit matter economically and politically?
The Big A: Yes.
In simple terms, Americans have a higher standard of living today than they would otherwise have.
In the trade dispute with China, President Trump has fired 2 shots: 1 at China and the other at the rest of the world.
The Chinese are targeted with what the President has described as a $100-B of tariffs. What means is that US consumers would be taxed on a $100-B of imports, not that the tax (tariff) would be $100-B.
What that means, if carried out, is that US consumers of $150-B of imports, partially made in China, would now be subject higher prices on those goods (call it a tariff or a tax).
The Chinese could not impose taxes on a total of $150-B of US imports because they do not import as much as a $150-B from the United States.
Aside from Canada and Mexico, no country in the world imports as much as $150-B from the United States.
The 2nd shot is that the rest of the world would be affected by a pledge to subsidize American farmers.
But, subsidizing American farmers might lead to a response from other countries because the subsidies would give American farmers an unfair competitive advantage.
The Big Q2: Is this a trade war?
The Big Aq: No, it is not
Negotiations are the likely outcome.
Tune out the Noise!
Have a terrific weekend