The Trump administration has chosen the elimination of the U.S. trade deficit as its chief economic policy objective. This is misguided. In almost all cases, the magnitude of a country’s trade deficit should not be viewed as a policy variable.
President Trump’s tariffs were implemented to supposedly combat the United States’ large and persistent trade deficits. The Trump administration believes these deficits are the result of foreigners taking advantage of the United States through unfair trading practices. As we wrote two weeks ago, the administration is wrong on both counts. The U.S. trade deficit is homegrown, and it is easy to finance due to the privilege of Americans’ access to cheap capital.
