The trade deficit has been growing for decades — and ballooned by more than 30 percent under President Obama. Reversing the trend likely won’t be quick or easy.
America’s trade imbalance is the result of a complex web of trade agreements, barriers erected by trading partners against U.S. exports, the country’s persistent dependence on foreign oil, and weak economies in many other countries that depress domestic consumption.
“Nothing this big turns on a dime. That never happens.”
Economic experts said President-Elect Donald Trump will need to pursue a number of new policies and stand firm against powerful interests that support the status quo.
“Nothing this big turns on a dime,” said Alan Tonelson, an economic policy analyst who writes a blog called RealityChek. “That never happens.”
The trade deficit in 2015 was more than $500 billion and is on track — pending calculation of the gap in December — to come close to that figure for 2016.
The real-world implications of that imbalance are stark, said Peter Morici, an economics professor at the University of Maryland.
“It’s 4 million jobs,” he said. “If we export more and import less, we could bring back 4 million jobs.”
Morici said that has the potential to provide jobs for more than half of the 7 million men between the ages of 25 to 54 who have dropped out of the labor force and are not even looking for work.
Kevin Kearns, president of the U.S. Business & Industry Council, called for a more aggressive posture toward China and other countries that “dump” products at below cost on the U.S. market, manipulate currency, and take other steps to undermine American companies. He said America should impose a border-adjustment tax to compensate for the advantage most other countries enjoy for a value added tax. Currently, U.S. exports are hit with a VAT but imports into the United States are not.
Aggressive action by the United States would make it more financially advantageous to build products at home, Kearns said.
“There’s no reason these goods can’t be made in the United States by Americans, where money is not leaving the country,” he said.
Kearns also rejected the contention argued by free trade advocates that the contraction of the U.S. manufacturing sector is the result of automation, not trade. He said automation has played a part but added that free traders are being disingenuous when they fail to acknowledge the role played by trade policy.
“Carrier isn’t moving to Mexico for better robots,” he said.
Beyond trade policy, Kearns said America’s policies are far ahead on implementing national industrial policies. He said Germany and Japan are high-wage countries, like the United States, yet have much more vigorous manufacturing sectors. He said that is because those countries help their companies compete in the world economy. He said the German government places officials in companies to help promote exports. That country also has a well-regarded apprenticeship program to train workers.
Morici said most of the trade deficit is the result of oil imports and the gap with China. Trump should use the stick of tariffs to bring China to the negotiating table to address longstanding issues, he said. He said Trump’s promises regarding China are not substantially different that what 2012 GOP nominee Mitt Romney proposed.
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“What Trump is proposing should not surprise anyone,” he said. “The only reason conservative economists, Republican economists, are screaming about it is because Trump got elected and Romney didn’t.”
Morici said that along with trade agreements, the Trump administration should tear up the climate change agreement that President Obama negotiated in Paris in 2015. Obama never submitted it as a treaty for Senate confirmation, so Trump could withdraw unilaterally. He said the climate accord gives emerging economies an unfair advantage over the United States. Withdrawing from it and expanding domestic energy production would make a bit dent in the deficit, he said.
Morici said Trump also would be wise to improve the education and skills of American workers to make sure they are up to the challenges of modern manufacturing.
“The jobs that will come back aren’t going to look like the jobs that left,” he said, adding, “Forty percent of colleges graduates don’t think very well.”