President Donald Trump has waged a trade war unlike any the United States has seen since the 1930s, upsetting our global allies and panicking markets as he’s gleefully slapped tariffs on steel and Chinese products.
And by just about any measure you pick, his effort appears to have been an absolute flop.
Consider the trade deficit, which Trump has promised to shrink. On Thursday, the Commerce Department reported that it actually grew by $68.8 billion in 2018, reaching $621 billion, as imports continued to outpace exports. In December, the monthly gap hit a 10-year high. The timing of the announcement was almost poetic: It came just over a year after Trump tweeted that “trade wars are good, and easy to win.” As he is learning, they are not.
Because the president is obsessed with manufacturing jobs, the White House likes to focus on the trade deficit in goods alone—ignoring the contributions of services like finance and education. But on that score, its performance looks even worse. The goods gap soared to an all-time high of $891.3 billion last year. It grew with China. It grew with Mexico. It grew with Canada. Like Wile E. Coyote with a box of ACME dynamite, Trump tried to blow up the global trade order, and instead came out looking like a used matchstick.
Why is the trade deficit widening? Part of the story likely has to do with the federal budget deficit, which has surged thanks to the tax cut Republicans passed in 2017. As the old saying goes, trade deficits occur when countries spend more than they produce. So all else equal, when the government borrows money from overseas to finance its red ink, you can expect Americans to buy more imports. Higher deficits can also lead to higher interest rates, which push up the value of the dollar and hurt the competitiveness of American exports. When the tax bill passed, many economists predicted that it would exacerbate the trade gap and undermine Trump’s central economic promise to blue-collar voters.
In other words, we’re witnessing an entirely foreseeable own goal.
The more you drill down into the stats, the more embarrassing they seem for Trump. Take the results of our tit-for-tat tariff skirmish with China, which the White House has hoped would force Beijing to negotiate better trade terms. The White House placed levies on $250 billion of Chinese goods. China responded with tariffs on $110 billion of American goods—including politically sensitive commodities like soybeans.
The result? Our imports from the People’s Republic rose last year and our exports to it fell. This happened, in part, because China allowed its currency to depreciate against the dollar, which canceled out some of the impact of Trump’s tariffs—another entirely predictable outcome. Meanwhile, the administration has been forced to spend billions bailing out farmers.
As the data have streamed in, economists have begun to conclude that the trade war is also weighing on the broader U.S. economy. The harm is not large, but it is noticeable. One study, by researchers at the Federal Reserve and Columbia University, concluded that each month the tariffs cost Americans $3 billion in extra taxes and $1.4 billion in lost economic efficiency. The other, by a team including World Bank chief economist Pinelopi Goldberg, estimates that the U.S. economy took a $7.8 billion loss in 2018 (companies and consumers faced almost $69 billion in higher costs from the tariff, but those were canceled out some by tariff revenues, and the fact that domestic companies were able to raise their own prices).
The two papers also undercut one of Trump’s favorite talking points on trade. The president frequently likes to say that tariffs are taxes on countries that sell goods to the U.S. His critics usually retort that, no, they’re actually taxes on American businesses and consumers (since, as a legal matter, they pay the cost). In theory, either could have turned out to be true. U.S. companies might have chosen to pay the tariffs themselves and pass the expense on to their customers. Or they might have demanded that Chinese suppliers or foreign steel factories lower their prices, forcing them to effectively bear the burden of the levies.
In practice, it turns out that Trump was wrong and his critics were right. Both research teams found that American businesses paid the full cost of the tariffs, and likely charged consumers more as a result, just like the naysayers expected.
Again, Trump’s trade protectionism has only been a modest economic drag so far ($7.8 billion is not a huge deal in the scheme of a $19 trillion economy). The problem is that the U.S. has gotten little to nothing for it in return. Sure, thanks to the administration’s tariffs, steel companies are enjoying record profits. At Nucor alone, sales grew 23 percent in 2018. But the industry only added 2,400 jobs last year (a 1 percent increase). The Peterson Institute for International Economics calculates that steel users will end up paying more than $650,000 for each new job eventually created.*
We haven’t exactly gotten the spectacular new trade deals Trump promised during his campaign either. The administration hoped that threatening our trade partners with tariffs would force them to negotiate new pacts that gave the U.S. a leg up in global commerce. But the results have been underwhelming. The new-and-sort-of-improved NAFTA makes some important changes around the edges of the agreement, including key ones to international dispute settlement, but is widely regarded as little more than a rebranding effort. The agreement shaping up between China and the U.S. is looking like even more of a disappointment. In return for lowering tariffs, China would buy more U.S. agricultural goods and lower some barriers that keep U.S. companies from operating there. It would do nothing regarding issues like intellectual property theft that are of much greater concern to U.S. corporations. Trump started an unprecedented trade war, and all we’re gonna get are some lousy soybean sales.
Correction, March 7, 2019: This post originally misstated how much steel users will end up paying for each new job created. It’s $650,000, not $650,00.