When it comes to economic policy, Donald Trump has a split personality. In 2017, he passed huge tax cuts—typical behavior for a Republican president. In 2018, however, he’s invested his energy in waging trade wars on China and other nations, with the stated goal of protecting American industry. It’s a nationalist mission far outside the bounds of typical GOP priorities.
But Trump the Republican supply-sider seems to be tripping up Trump the Trade Warrior. As the latest trade data hints, Trump’s fiscal stimulus (that is, the combination of his tax cuts and the mammoth budget bill he signed shortly after) is making his dreams of defeating the US trade deficit harder and harder to realize.
The US trade gap shrank in the second quarter, boosting America’s GDP. But in July, the trade deficit widened to a whopping $50.1 billion.
Monthly trade numbers are notoriously noisy. Still, the data offer some intriguing clues about the impact of Trump’s policies on the US economy.
The latest data suggests that Trump’s policies are failing to boost exports. Adjusted for prices, export growth rose only 5.1% compared to the same month in 2017, the slowest pace since January 2018—confirming Oxford Economics’ view that growth in global demand is ebbing, according to Oren Klachkin, economist at the research firm.
Unfortunately for Trump, the latest data suggest his policies are also upping imports—the opposite of what the US needs to do to close a trade gap. Imports grew 5.9% from July 2017—a faster pace of increase than in June, when they rose 5.1% from the same period a year ago.
“Behind all the noise, the core story here is that strong domestic demand is sucking in imports, offsetting the gains in exports,” Ian Sherpherdson, chief economist at Pantheon Macroeconomics, writes in a note. “The trade deficit likely will be flat-to-higher over the next couple of months, reversing most or all of the second quarter’s drop, which the president has cited as evidence of the success of his trade policies. It wasn’t.”
No surprise there, really. Policies designed to twiddle with export and import volumes are unlikely to alter the trade balance unless they change the things that do shape it—namely, savings and investment levels. And as economists noted after Trump’s tax cuts and the budget bill, the resulting fiscal stimulus could worsen the trade balance by discouraging saving and juicing demand.
That seems to be what’s happening. Since the US economy is operating a near-full capacity, US manufacturers can’t keep up with increased demand from the tax cuts. So Americans buy products from abroad instead. Ironically, the crowning achievement of Trump the Republican is deepening the same economic imbalances that helped propel Trump the Trade Warrior into office.