Trump takes aim at trade deficits. Are they actually bad?
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Whatever you think of President Trump's tariffs, there's one point you have to concede. His interest in them is not just some passing whim. He noted that on Wednesday in the Rose Garden when he was announcing the latest massive round of tariffs. Great consistency, actually, because I've been talking about it for 40 years. But because I saw what was happening 40 years ago. If you look at my old speeches when I was young, very handsome. Yeah.

My old speeches, and people would say, I'd be on a television show, I'd be talking about how we were being ripped off by these countries. I mean, nothing changes very much. The only thing that changed were the countries. It's true. He's been talking about this for years. Here he is on the Oprah Winfrey Show back in 1988. If you ever go to Japan right now and try to sell something, forget about it, Oprah. Just forget about it. It's almost impossible. They don't have laws against it. They just make it impossible.

They come over here, they sell their cars, their VCRs, they knock the hell out of our companies. You see, these are core beliefs for Donald Trump. Trade deficits are bad. Other countries are taking advantage of the U.S. Tariffs are the way to fix all of this. These beliefs shaped his whole first presidential campaign. We have a $500 billion deficit, trade deficit with China. We're going to turn it around.

And we have the cards. Don't forget, we're like the piggy bank that's being robbed. These same beliefs shaped his first presidential term. I am taking action to impose safeguard tariffs on imported residential washing machines and all solar products. The first Trump administration would ultimately impose tariffs on thousands of products valued at nearly $400 billion.

Well, that is nothing compared to Trump 2.0. Tariffs on cars, tariffs on steel, and yesterday what he called the big one, an across-the-board tariff on all imports from virtually every single country, ranging from 10% to as high as 50%. I say to the leaders, look, you've got to take care of your country, but we have to start taking care of our country now. We can't do what we've been doing for the last 50 years.

The markets have plunged since his announcement. Other countries have promised to retaliate. Members of his own party have spoken out against these tariffs. Trump is risking a lot on his beliefs about trade. Consider this. Trump's tariff plan is designed to eliminate U.S. trade deficits. Are trade deficits actually bad? From NPR, I'm Elsa Chang.

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It's Consider This from NPR. What you think of Trump's tariffs depends a lot on whether you agree with his core premise, and that is trade deficits are bad and we should eliminate them. Well, Jason Furman does not agree. He was the top economic advisor to former President Obama, and he's an economist at Harvard University. I talked with him about his views on trade deficits.

Okay, first, what is a trade deficit? Just define it for us. A trade deficit is when you pay more money to another country in exchange for the stuff you're buying from them than they pay you in exchange for the things that they buy from you. Okay, and then from an economist's point of view then, is it bad for the U.S. to have a trade deficit? The one thing that is definitely not bad is trade deficits with any individual country.

Even if overall we didn't have a trade deficit, there would still be some countries where we really love their products and we need them. And so we have a trade deficit with them.

and some other countries where it's the opposite. So right now, Brazil buys a lot of energy stuff from the United States. So we have a surplus with them. France makes a lot of food and chemicals that we need here in the United States. And so we run a trade deficit. Overall, if the trade deficit is really, really large for a really long period of time, it can be unsustainable. Don't think that's where the United States has been. Okay. And if the U.S.

is continually paying more for imports than the U.S. receives for exports, explain why the U.S. does not run out of money. The United States doesn't run out of money because all of those dollars that we send abroad get reinvested and come back to the United States.

building factories in the United States, financing our government debt. In fact, we've had this trade deficit for decades now, and we're still actually making a profit every year financially from the rest of the world.

Because our investments overseas pay more than their investments do in the United States. Okay. And just to bring the tariff piece into all of this, it is true that the U.S. has had lower tariffs on imports than most of the countries that it trades with. And to President Trump, that's just unfair. But has the U.S. gotten anything in exchange for those lower tariff rates?

Yeah, tariffs are a tax on yourself. So it's not obvious that you want them to be higher. What are the countries with high tariff rates? They're places like North Korea, Venezuela. I don't think we want to emulate them. I think we'd like to be more like the rich, dynamic countries like, say, the United States, which has benefited from its openness to trade.

Moreover, other rich countries actually have quite similar tariffs to the United States. Most of them have 1% or 2% on us. We have 1% or 2% on them. It is true that China's and India's of the world have higher tariffs, but their tariffs are like 6% on the United States, while ours were 1% on them. So we'd only need to raise tariffs by a few percentage points if we even wanted to match them. Not that I think that should be our goal.

Okay. Well, if I may push back just a little bit, I mean, trade deficits are not always great in all aspects, right? Like the U.S. has lost huge numbers of manufacturing jobs, and we're talking about well-paying jobs for people without a lot of education. Trump says the tariffs will help bring back those kinds of jobs. Why isn't it worth it to give it a try, even if it's

Tariffs might mean slightly higher prices and lower profits. First of all, the United States is producing more than it's ever produced in manufacturing. It's just doing it with less people. And that's because of the enormous increase in productivity growth.

But let's say you wanted to use trade policy to bring manufacturing jobs back. You wouldn't do what the president just did, which is to put tariffs on all the bananas, mangoes, avocados and coffee coming into the United States.

Those just aren't things that we're really ever going to make at enormous scale. Moreover, the types of things that they do in Vietnam, you know, making clothing, making shoes, that's not the jobs that we should be aspiring to have in the United States. We don't want to give up jobs making airplanes in order to have more jobs making shoes.

Finally, these tariffs themselves, I think, will likely end up hurting manufacturing, not helping it, because they blow up global supply chains, raise the cost of inputs to American businesses, and our businesses are now having to

deal with tariffs in lots and lots of other countries in retaliation for what we've done. Trump also points out that the tariffs didn't crash the economy during his first term. And in fact, President Biden had left many of Trump's tariffs in place, right? So what would you say is different about Trump's new tariffs? The difference is the scale and the lack of focus.

In his first term, he raised the average tariff rate from about 2.5% to 4%. This time, he's gone from 4% to 25%. So it's more than 10 times larger increase in less than four months than he did in his entire four years.

Second, the tariffs last time were very much focused on China. And there's a lot of good arguments for and against focusing your tariffs on China. Here, they're just willy-nilly sprayed all around the world in sometimes ways that looked just random and definitely not thought out.

So with tariffs increased at the scale that President Trump wants to increase them, what do you see is going to be the outcome? Almost every economic forecaster has lowered their forecast of growth quite a lot. Most are not predicting a recession, but you never know.

Almost every economic forecaster has raised their forecast for inflation, and American families should expect to see higher prices basically starting almost right away. Over the longer run, if something like this lasts, I

I expect us to have basically worse paying jobs as we have more people working to make shoes and T-shirts for Americans and fewer people making airplanes and tech products for export. And when it comes to companies bringing in products from China, what do you see as the long-term outcome here? I mean, just when markets opened today, Nike stock was down double digits. Apple had lost more than $250 billion in value today.

On that front, what do you think is the long-term consequences? You're going to see less global trade. You're also going to see a shift in the pattern. Companies will move their factories from China to other countries. Now, you can't get all the way around these tariffs, but you can get less if you can move them out of China. So you'll see some changes in the pattern of global trade. You'll also see other countries integrating themselves

in a greater way at the expense of the United States and cutting the United States out of those value chains as they try to find, for example, parts suppliers in Canada or somewhere else they think is more reliable than relying on American companies. Jason Furman with Harvard University. Thank you very much for joining us today. Thanks for having me.

This episode was produced by Connor Donovan. It was edited by Courtney Dorning. Our executive producer is Sammy Yenigan. It's Consider This from NPR. I'm Elsa Chang. Want to know what's happening in the world? Listen to the State of the World podcast. Every weekday, we bring you important stories from around the globe. In just a few minutes, you might hear how democracy is holding up in South Korea. Or meet Indian monkeys that have turned to crimes.

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