Trump, Trade & Tariffs
The rest of the world is keen to invest into the US. Running a trade surplus with them is the only way to accomplish that. A shrinking trade deficit would remove a growth driver for the US economy.
Disclaimer: The information contained in this article is not and should not be construed as investment advice. This is my investing journey and I simply share what I do and why I do that for educational and entertainment purposes.
While the actual scope is not yet entirely clear, it seems certain that there will be significant changes to the US trade policy in the coming years with profound implications for financial markets, FX rates and the real economy. With this article, I don’t have the ambition to address them all in a comprehensive manner. It’s only a start. Fallacy Alarm is about attempting to understand the financial and economic world step by step. One question at a time.
TLDR Summary
Trump has launched a vendetta against the most important trading partners of the US. It’s possible he is just playing the cards of the US aggressively in international trade. Perhaps he just wants to direct some of the trade proceeds into the Treasury’s pockets to get a better deal on imports. But it’s also possible that he truly views the enormous US trade deficit as an offense, a proof that the rest of the world is taking advantage of the US. After all, the mainstream macro view is that a trade surplus is a matter of national pride that points to the competitiveness of the own industry and the quality of its products.
This mainstream view is however very narrow-minded. It centers the assessment of the balance of payments only around the trade balance, which omits half of it. The capital balance is equally important and in the case of understanding the current shape of the US economy it is perhaps even more important.