Drop in US trade deficit may be temporary, warn economists

“We’ve accomplished an economic turnaround of historic proportions,” US President Donald Trump remarked at the White House shortly after the Commerce Department released its GDP report highlighting that US GDP growth hit 4.1 percent in the second quarter 2018.

Also, it marked the start of the 10th consecutive year of growth within the framework of a long recovery after the 2008 great recession and that took off under President Barack Obama. His Republican successor Trump praised the Q2 good figure as a result from his own economic policies and underlined that “one of the biggest wins in the report (…) is that the trade deficit (…) has dropped.”

Although a large portion of Americans considers Trump does hold real responsibility for this, a number of economists now questions his contribution to what he described as “a turnaround of historic proportions”. For instance, the drop in trade deficit could be temporary fallout from Trump’s decision to tax hundreds of billions of dollars of foreign goods especially those from China.

Indeed, the response from tierce countries that have been targeted by Trump has yet to produce some effect in the statistics, and considering the incoming response from China and the European Union (EU), there is some thought that Trump’s reduced deficit will prove short-lived.

On the contrary, if conservative economists do fear adverse effects from Trump’s trade policy too, they most often acknowledge that Trump has created favorable conditions for the US economy to grow even more especially with the tax reform. In the end, what Trump’s trade war shows is that nobody knows for sure if and how much it will cost the US economy in the longer run.

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