Trump's absurd trade policies will impoverish Americans and harm the world.

Originally Posted By Common dreams on April 2, 2025

US President Donald Trump is destroying the global trading system based on a fundamental economic fallacy. He wrongly claims that the US trade deficit is caused by the rest of the world exploiting the country, repeating statements such as: "Over the decades, they have exploited us like no other country has ever been exploited in history..."

Trump intends to close the US trade deficit by imposing tariffs, preventing imports, and restoring trade balance (or inducing other countries to stop "exploiting" the US). However, Trump's tariffs will not close the trade deficit; on the contrary, they will impoverish Americans and harm the rest of the world.

A country's trade deficit (or, more precisely, its current account deficit) does not indicate unfair trade practices by surplus countries. It indicates something entirely different. A current account deficit means that the deficit country is spending more than it produces. In equivalent terms, it is saving less than it invests.

The U.S. trade deficit is a measure of the prodigality of the American corporate ruling class, more specifically the result of chronically high budget deficits stemming from tax cuts for the rich combined with trillions of dollars wasted on futile wars. The deficits are not the fault of Canada, Mexico, or other countries that sell more to the U.S. than they buy from it.

To close the trade deficit, the US would have to close the budget deficit. Imposing tariffs will increase prices (such as those of automobiles), but it will not close the trade or budget deficit, especially since Trump intends to offset the tariff revenue with even larger tax cuts for his wealthy donors. Furthermore, by increasing tariffs, the US will face retaliatory tariffs that will directly harm US exports. The result will be a lose-lose situation for the US and the rest of the world.

Let's look at the numbers. In 2024, the U.S. exported $4,8 trillion in goods and services and imported $5,9 trillion, resulting in a current account deficit of $1,1 trillion. This $1,1 trillion deficit is the difference between total U.S. spending in 2024 ($30,1 trillion) and U.S. national income ($29,0 trillion). The U.S. spends more than it earns and borrows the difference from the rest of the world.

Trump blames the world for the American deficit, but that's absurd. It's the US that's spending more than it earns. Consider this example: if you're an employee, you have a current account surplus with your employer and a deficit with the companies from which you buy goods and services. If you spend exactly what you earn, you're in balance. But suppose you overspend and accumulate credit card debt. Now you have a current account deficit. Are the stores exploiting you, or is your own recklessness putting you in debt?

Tariffs will not close the trade deficit as long as the fiscal irresponsibility of the corporate plunderers and tax evaders who dominate Washington continues. Even if Trump reduces imports of automobiles and other goods, Americans will start buying domestically manufactured products, reducing exports. Furthermore, retaliatory tariffs from other countries will further harm American exports.

The tariffs will raise car prices and the wages of auto workers, but these increases will be paid for by lowering Americans' living standards, not by increasing national income. The real way to support US workers is with federal measures that oppose Trump's – such as universal health coverage, support for unionization, and investments in modern infrastructure and green energy, funded by higher taxes on the wealthiest and corporations.

Trump and Republicans in Congress want to cut Medicaid to make room for more tax cuts for the wealthiest. Soon, they may attack Social Security and Medicare as well.

Trump's tariffs will fail to close the trade and budget deficits, will increase prices, and will make the U.S. and the world poorer by squandering the benefits of trade. The U.S. will become an enemy of the world because of the damage it is causing itself and others.