“The Trump administration has never had a workable plan to reduce the trade deficit,” explained Mary Lovely, a senior fellow at the Peterson Institute for International Economics. “Their tax cut in 2017 ensured that the US as a whole would spend more than it produced, hence the need for a current account deficit. Tariffs on China have reduced imports from China, but they have mostly been replaced by imports from other sources. ”
Deficit with China has fallen: Trump is succeeding in reducing the bilateral trade deficit with China because of the tariffs he has imposed on more than $ 350 billion worth of Chinese goods. Final figures show that the trade gap with China will reach $ 311 billion in 2020, sharp to the record high of $ 419 billion in 2018.
But when Trump reduced imports from China, U.S. businesses turned to other foreign suppliers. The US trade deficit with Vietnam, Thailand, Taiwan, the Philippines, Malaysia, South Korea, Indonesia, Russia, France, Germany, Ireland, Italy and Switzerland was all higher in 2020 than in 2019. Imports from China also fell in the second half. grown strongly. of 2020.
Trump’s tariffs have also brought businesses and consumers higher costs. U.S. Customs and Border Protection collected $ 74.4 billion in tariffs on imported goods during the 2020 financial year, which ended on September 30. That was more than double the tax that CBP levied on imports before Trump took office.
In addition, China, the European Union and a number of other countries have cut back on U.S. exports, including many farm goods. It had such a negative effect on farm income that the Trump administration provided more than $ 23 billion in aid to farmers for trade-related losses.
“When retaliation is taken into account, the cost of this wrong approach is measured in the hundreds of billions,” said Michael Smart, managing director of Rock Creek Global Advisers, an international economic policy advisory firm.
The Trump administration has argued that China is in fact paying the rights by lowering the price of the goods it sends to the United States. But a recent study by a Federal Reserve Bank of New York economist and two colleagues concluded that “U.S. tariffs are still borne almost entirely by U.S. businesses and consumers.”
Trump’s ‘Phase One’ Trade Agreement: In a partial justification for Trump, China has bought a large quantity of American wheat in recent weeks, including a one-day purchase of 2.1 million tons on January 29, which was the second largest recorded.
But the Department of Commerce’s data released on Friday showed that US exports to China in 2020 were far below the target set in Trump’s ‘Phase One’ trade deal with the Asian power station, albeit in the last months of the year rose sharply.
Under the agreement, China is expected to increase purchases of US goods and services by $ 2 billion by more than $ 200 billion. This includes $ 76.7 billion in increased purchases in 2020 and $ 123.3 billion in 2021.
US exports of goods to China in January to December 2020 was $ 110 billion, about $ 20 billion less than in 2017. In addition, U.S. exports to China were about $ 28 billion in the first three quarters of 2020, compared to $ 55 billion in 2017.
Coronavirus impact: Had it not been for the global pandemic, the trade deficit with China and the total trade deficit might have been smaller than it finally was in 2020.
“Chinese producers have recovered rapidly and pumped PPE, electronics and other products into the world economy, including to the US,” Lovely said.
The year ahead: President Joe Biden also expressed concern about the trade deficit, but not to the extent that Trump did. This may be happy for the new president, because the same macroeconomic factors that increased the deficit during Trump’s term are still on the agenda.
‘As we look ahead to 2021, as the Biden government moves forward with a different stimulus, the US economy will grow faster in the second half of the year, the US will import more and the trade deficit is likely to rise again. “Slow recovery in other countries will weaken US exports,” Lovely said.