The Flinchum File
Thoughtful Economic Analysis and Existential Opinions

Too Soon To Know

09/07/2018

President Trump is justifiably concerned about our nation’s ongoing trade deficits.  At first blush, the latest results are not encouraging.  For the first seven months of this year, the deficit is a whopping $22 billion more than last year.  It doesn’t appear that his worldwide trade war is making much progress.

But, it is premature to make any judgment.  For one thing, the stronger U.S. dollar this year makes our imports cheaper, so U.S. importers are importing more inventory to sell here.  Conversely, the stronger dollar makes our exports more expensive for other countries to import, so their importers are importing less from us.  In addition, with the risk of tariffs being imposed, making the price of U.S. imports higher later, many importers have increased their imports now to beat the imposition of tariffs later.

While I wish the President well, I have two concerns.  One is that he tackled Canada, Mexico, China, and the EU — all at the same time.  (Hitler had a bad result fighting a two-front war.)  I expect a trade war between China and the U.S. is very different than a trade war between China on one side — facing the U.S., Canada, Mexico, and the EU, all on the other side.  Second, I’m afraid his current political troubles will weaken his negotiating strength.  This is totally unexpected.  It is conceivable that our aggregate trade deficit might get worse instead of better.

Crossing my fingers now . . .

 

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