Okay, I'll bite.
There is an easy answer to this question: a "trade deficit" doesn't mean what the president thinks it means. We aren't losing money.
There is an easy answer to this question: a "trade deficit" doesn't mean what the president thinks it means. We aren't losing money.
2/ Trade numbers always balance out. If there is trade deficit of $800 billion, then there must be an opposite and equal influx of $800 billion into the economy. If there isn't a matching amount, then the value of the dollar would change, until the numbers matched.
3/ If there's only $700 billion incoming money, then the value of the dollar falls. A falling dollar makes imports more expensive, so we buy less from abroad. They also make exports less expensive, so we export more. Thus, the numbers come back into balance.
4/ The reverse is true. If there's a lot of incoming money, the dollar becomes stronger, making our imports cheaper, so we import more (and export less) until again, the outgoing and incoming flows equalize. That's where we are at now, with a strong U.S. dollar.
5/ Trump is simultaneously pursuing a policy of a "strong dollar" and "lower trade deficits", which are opposite from each other. You can't do both at the same time, it's mathematically impossible. The money flows always equalize.
6/ I mean, you can do both, by reducing trade/flows in both directions, so that we simultaneously import AND export less. We can get rid of all trade deficits by simply getting rid of trade, but that's monumentally stupid.
7/ So why is there all this incoming money? The answer is investment. The U.S. receives $3 trillion investment from abroad, and sends over $2 trillion back out, with the difference roughly equal to the trade deficit.
8/ This investment is a large capital base for building companies. It's because we have so much capital slushing through our economy that it's so powerful, as foreigners give us money to build factories and so forth.
9/ Foreigners prefer to invest in the U.S. because we run our economy better than their countries do. Well, we did, until we elected a populist president who went crazy destroying trade.
10/ It's not that trade deficits are meaningless, it's that their meaning is difficult. Part of the incoming dollars also goes to propping up our budget deficits, as foreigners buy T-bills. So there are problems here.
11/ But again, Trump's policies are to reduce tax incoming and increase budget spending -- which needs more incoming money from foreigners to fill the gap, which increases the trade deficit.
12/ Mucking around trying to reduce steel and milk tariffs won't change the budget deficit. Unfair trade practices from our trade partners aren't the problem. A strong dollar policy, a high budget deficit policy, and a great investment climate are what's causing trade deficits.
