By Paul Wiseman, Associated Press Economics writer
Washington (AP) – By declaring a trade war on the rest of the world, President Donald Trump panicked the world’s financial markets, raised the risk of recession and broke the political and economic alliances that made a large part of the world’s stable for business after the Second World War.
On Wednesday, the latest series of Trump prices entered into force at midnight, with higher import tax rates on dozens of countries and territories that set up.
Economists are perplexed to see Trump try to revise the existing economic order and do it so shortly after inheriting the strongest economy in the world. Many business partners he accuses of having scanned American companies and workers were already wading.
“There is a deep irony in Trump claiming unfair treatment of the American economy at a time when it developed in a solid way while all the other major economies were blocked or lost growth dynamics,” said Eswar Prasad, professor of commercial policy at Cornell University. “In an even greater irony, Trump’s prices are likely to end the remarkable success of the United States and to place the economy, employment growth and the financial markets. ”
Trump and his commercial advisers insist that the rules governing world trade are putting the United States in a distinct disadvantage. But traditional economists – whose Trump views and his advisers disdain – say that the president has a distorted idea of global trade, in particular a concern for trade deficits, which, they say, do nothing to hinder growth.
The administration accuses other countries of erect unfair commercial barriers to prevent American exports and use sneaky tactics to promote their own. In Trump’s account, its prices have been a long-term calculation for a long time: the United States is victims of economic assault by Europe, China, Mexico, Japan and even Canada.
It is true that some countries provide higher taxes on imports than the United States. Some manipulate their currencies below to ensure that their goods are competitive on prices on international markets. Some governments provide their industries with subsidies to give them an advantage.
However, the United States is still the second largest exporter in the world after China. The United States has exported 3.1 billions of dollars in goods and services in 2023, well ahead of Germany in third place at 2 billions of dollars.
The fear that Trump’s remedies be more deadly than the diseases he tries to heal has sent investors fleeing American actions. Since Trump announced radical import taxes on April 2, the S&P 500 wrapped 12%.
Despite high trade deficits, the American economy is strong
Trump and his advisers underline the unbalanced trade figures of America – year after year of enormous deficits – as proof of the perfidy of foreigners. He seeks to restore justice and millions of American factory jobs for a long time by taxing imports at rates not seen in America since the time of the horse and the buggy.
“They removed so much from our wealth of us,” said the president last week during a white house Rose Garden ceremony to celebrate the announcement of the prices. “We are not going to let it happen. We can really be very rich. We can be so richer than any country. ”
But the United States is already the richest great economy in the world. And the International Monetary Fund in January provided that the United States would exceed all other major advanced economies this year.
China and India have grown up faster than the United States in the last decade, but its standard of living is still not close to those in the United States
In the United States, manufacturing has faded for decades. There is a general agreement that many American manufacturers could not compete with a cheap importance of imports after China joined the World Trade Organization in 2001. The factories were closed, workers were dismissed and the communities of heart have withered.
Four years later, nearly 3 million manufacturing jobs had been lost, although robots and other forms of automation probably did at least as much to reduce factory jobs as “Chinese shock”.
Prices are Trump’s versatile weapon
To run this long decline, Trump has repeatedly issued the prices which are his weapon of choice. Since his return to the White House in January, he has completed 25% of taxes on foreign cars, steel and aluminum. He struck Chinese imports with 20% samples, in addition to the high prices he imposed on China during his first mandate.
On April 2, he castigated his big Bazooka: 10% of “basic” prices on almost everyone and “reciprocal” prices on everyone that the Trump team identified as bad players, including the small Lesotho (an import tax of 50%) and China (34% before adding statements earlier).
Trump considers prices as a versatile economical solution that will protect the American industries, will encourage companies to open factories in America, collect funds for the US Treasury and give it a leverage to bend other countries to his will, even on issues that have nothing to do with trade, such as drug trafficking and immigration.
The president also sees a smoking pistol: the United States has bought more from other countries than he sold them each year during the last half century. In 2024, the American trade deficit of goods and services reached $ 918 billion, the second largest amount ever recorded.
Trump’s sales advisor Peter Navarro calls for American trade deficits “the sum of all cheating” by other countries.
However, economists say that trade deficits is not a sign of national weakness. The American economy has almost quadrupled in size, adjusted for inflation, during this half-century of trade deficits.
“There is no reason to think that a higher trade deficit means lower growth,” said former IMF chief economist, Maurice Office, principal researcher at the Peterson Institute of International Economics and economist at the University of California in Berkeley. “In fact, the opposite is closer to the truth in many countries.”
A trade deficit, said Obstfeld, does not mean that a country loses in trade or “torn off”.
Spend a lot, save a little and see business deficits swell
The more the American economy increases, in fact, the more importations of Americans tend to buy, the more the trade deficit tends to obtain. The American trade deficit – the gap between what he sells and what he bought from foreign countries – reached a record of $ 945 billion in 2022 while the American economy evolved COVVI -19 locking. Trade deficits generally fall strongly in recession.
Trade deficits are also not mainly inflicted on America by the unfair commercial practices of other countries. For economists, they are a local product, the result of the propensity of Americans to save little and to consume more than they produce.
The famous appetite for American buyers to spend more than the country makes means that a piece of expenses is used for imports. If the United States increased its economy – for example, by reducing its budgetary deficits – this would also reduce its trade deficit, according to economists.
“It is not as if the rest of the world has scanned us for decades,” said Jay Bryson, chief economist of Wells Fargo. “It’s because we are not saving enough.”
The back of the low economies and the trade deficits in America is a constant influx of foreign investment while other countries flow their export profits to the United States. Direct foreign investments in the United States reached $ 349 billion in 2023, the World Bank reported, almost double the entrances to Singapore 2.
The only scenario in which the prices reduce the American deficit is if they provoke investments in the United States, said Barry Eichengreen, an economist at the University of California in Berkeley. This “would be a disaster”.
Harvard University economist Dani Rodrik said that a “well -designed industrial policy” supported by certain prices “could have favored an increase in investments and capacity in manufacturing”.
Instead, said Rodrik, Trump’s actions “simply launch a lot of uncertainty” and alienate the best allies in America, which makes “a terrible policy in everything”.
The writer AP Economics, Christopher Rugaber, contributed to this report.
Originally published:
California Daily Newspapers
