Trump Is Losing Trade War With China And EU As Trade Deficit Takes Biggest Jump In Three Years

Donald Trump
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By the standards of Donald Trump’s own favorite report card on progress, which is the U.S. Census Bureau trade report as reported by Business Insider, Trump is losing the trade war. As most economists pointed out at the beginning of Trump’s multi-billion dollar trade war with China and the European Union, the approach he was taking wasn’t going to work. Initially, it appeared to be a rousing success, for about a month, but as the recent trade numbers show, that flurry of activity has died and reality has set in. That reality is that despite hailing himself as the greatest dealmaker there is, per Huffington Post, he is losing the trade war, and losing very badly per CNBC.

Even after a series of tariffs and retaliatory tariffs, the fact is the trade deficit has increased by 9.6 percent, or about $50.1 billion, over the last month. Part of the explanation for why Trump looked so smart at first, and now appears to look less savvy, is that prior to tariffs actually taking place, China loaded up on soybeans, which is the chief U.S. export to China. In one month, orders fell by $700 million, a 16.2 percent decrease.

When they did that, the trade numbers spiked and made it appear as if the tariffs were going to be a rousing success. Once the tariffs went into place, China reduced their orders for soybeans drastically, relying instead on their stockpiles to fuel their needs rather than new orders. That move is, in large part, why the trade deficit has ballooned so rapidly. Even some of his supporters at Fox News have had to admit, his plan isn’t quite working.

As Business Insider points out, and CNBC concurs, Trump continues to point at the growing trade deficit, which has only surpassed that of last year after this nearly record-setting increase, as the reason more, and higher, tariffs are needed. He either doesn’t understand or is willfully ignoring the evidence from the U.S. Census Bureau report that his tariffs are the cause of the sudden massive increase in the trade deficit. Last month when they showed positive numbers, he hailed them as definitive proof his policy was working, it will be interesting to see what he says now.

Another angle to look at is that since the tariffs have gone into effect, China has reduced U.S. imports by 7.7 percent, while U.S. imports of Chinese goods actually increased by 5.6 percent despite higher tariffs on them. It is a similar story with the E.U., as the U.S. increased imports by 2.5 percent, and exports to Europe fell by 15.7 percent. Understanding the basics of the imbalance is as simple as understanding that is you are importing more and exporting less, the trade deficit increases. There are also allegations that the U.S. is using tariffs as a means of manipulating foreign currencies, something Trump has railed against China for allegedly doing.

Ward McCarthy, chief financial economist at Jefferies, told Business Insider, there is worry among economists that these numbers will drive Trump to institute more penalties against the two trade partners, which will only make the situation even worse. He also noted that the trade deficit with Canada increased by 58 percent over the previous month, an increase of $3.15 billion. Between Canada, the E.U., and China, that is a $53.25 billion swing to the negative.

“These record deficits are likely both a partial consequence of the ongoing trade/tariff war and a likely catalyst for increase trade tensions between the US, EU and China.”

Ian Shepherdson, the chief economists at Pantheon Macroeconomics, was seeing the same type of shifts as McCarthy, and believes at best, the trade deficit will flatten out where it is, but will more likely increase in the coming months.

“The trade deficit likely will be flat-to-higher over the next couple of months, reversing most or all of the second quarter’s drop, which the President has cited as evidence of the success of his trade policies. It wasn’t.”

According to CNBC, the reasoning Trump is using regarding trade and tariffs is flawed and is not the way to grow the economy, and will soon start negatively impacting GDP if left unchecked.

“The administration says eliminating the trade deficit will put the economy on a sustainable path of faster growth, an argument that has been dismissed by economists as flawed given constraints such as low productivity and slow population growth.”

It is hard to argue the numbers, and even harder to claim that they are a good indicator of economic health. The rise in U.S. imports is not an indicator of a solid economy, but rather an indicator of reliance on foreign trade partners to provide for many of the nation’s needs. With China exploring a joint effort with Mexico to grow soybeans to cut down on U.S. dependence, per Farm Policy News, it may be time for the U.S. to re-think trade policy.