The Trump administration has chosen to eliminate the US trade deficit as the main economic policy goal. This is misleading. In almost all cases, the volume of the trade deficit of the country should not be considered as a political variable.
President Trump’s tariff was implemented to combat the large and continuous trade deficit in the United States. The Trump administration believes that this deficit is the result of foreigners from the United States through unhappy commercial practices. As we wrote two weeks ago, the administration is wrong in both charges. The American trade deficit is local, and it is easy to fund due to the privilege of the Americans’ arrival to cheap capital.
Now that the definitions have been implemented, with the threat of more coming, on the basis of a misleading concept of trade deficit, they risk alleviating surpluses in the great United States: its trade surplus in services and the large capital surplus resulting from the trade deficit of the United States. It is not surprising that President Trump’s lips are sealed with those surpluses.
The Trump administration depth in the service story because the United States is constantly running a major trade surplus in the services sector. Indeed, in 2023, the United States imported about $ 750 billion of foreign services and exported more than one trillion dollars in local services. This led to a surplus of services of $ 250 billion. The story was the same in 2024, when the United States turned a commercial surplus in services of approximately $ 300 billion. This year, in the first two months of 2025, the United States managed a surplus of $ 50 billion, indicating that it is again on the right track of an annual surplus of $ 300 billion.
Where does the surplus of services come from? It was the largest component of American services surplus in financial services, an industry that produced a $ 130 billion commercial surplus in 2024. American banks extend to the world, especially when it comes to providing consulting services for investment banking services for foreign companies. In fact, in 2024, the five best sites for global investment banking services I occupied before Nothing but Goldman Sachs, GB Morgan, Morgan Stanley, Bank of America, and Citigram.
Definitions threaten this surplus of services because they create uncertainty, and it strikes uncertainty in investment services. Every year, there are a limited number of companies on the market for consulting services on incorporations, acquisitions, debt financing or stocks – “fixed pie”, if you will. Each bank is competing for a larger and larger segment than that pie. When a healthy dose of uncertainty is injected into profits, companies find it difficult to develop long -term plans necessary to integrate or new round of financing. Thus, the fixed pie is shrinking, shrinking the revenues of investment banking services, and shrinking the surplus of American services. We are already watching this mechanism that works in a slow movement. For example, since “Liberation Day” on April 2, when the White House announced a new tariff, companies such as US Airlines, Delta, Southwest, Diaageo and Logitech have already stopped release Go forward. At the same time, it was the activity of making the deal Ground To stop.
The customs duties, the US capital surplus, were also at risk. Nobelst Milton Friedman once Note In an interview that “the trade deficit is not a deficit. In other words, it is an excess of capital.” In fact, the trade deficit and the overall capital are two sides of the same currency. When the United States manages a deficit in the trade of goods and services (current account), the identity of the payment balance dictates that it must be compensated with a deficit in the financial account of the United States. The American financial account records a negative balance when foreign purchases of American assets are larger than the US foreign origin purchases. In fact, the surplus of net capital. As it turned out, the United States has registered a net surplus in the capital almost since 1982.
It is possible to reduce any policy to reduce the bilateral defect of the absolute size of trade and the level of economic welfare in all countries. It is not surprising that the customs tariff has reduced the prospects for growth in the United States and incited talks on the target foreign revenge against American companies. This makes us less attractive shares for foreign portfolios. China is already Add More American companies to the export control list and the list of unreliable entities, and the European Union threatened to do so Running More strict regulations for American technology companies. The customs tariff generated interest rate fluctuations in the Treasury market, which destroyed the treasury status of safe securities and made the stock market backed by the 9 trillion dollars of the government agency, relatively less attractive to international investors.
President Trump wants to end the US trade deficit with definitions. This is impossible – the only way to reduce the American trade deficit is to make American savings in line with American investment, which may occur, for example, if policies are enacted to balance the federal and state government deficit and the local government. Therefore, not only the definitions of deficit towards reducing the American trade deficit, but rather, they risk canceling American surpluses for a long time – services and capital surplus. In this trade war, any victory for the United States will be a banner victory.
Steve E. Hank Professor Applied Economy at Johns Hopkins University and the author, with Liland Yiger, fromCapital, interest and waiting. Calip Hoffman is a research researcher at the Johns Hopkins Institute for Applied Economics, Global Health, and the Study of the Business Corporation.
This story was originally shown on Fortune.com
The post Ending the U.S. trade deficit with tariffs is impossible, and it risks eliminating two longstanding U.S. surpluses first appeared on Investorempires.com.
