From The Washington Post:

Donald Trump has become America’s most famous and outspoken critic of global trade. He’s argued that cheap goods imported from foreign countries are putting U.S. factories and their workers at a disadvantage.

“Our trade deficit in goods — think of this — our trade deficit reached nearly $800 billion last year alone,” Trump said in his speech accepting the Republican presidential nomination in July. “We’re going to fix that.”

But Trump’s platform faces a major problem: His tax policy could greatly increase the U.S. economy’s reliance on foreign goods.

Trump’s plan would reduce taxes by between $4.4 trillion and $5.9 trillion over 10 years, before taking into account broader effects on the economy, according to an independent analysis. Trump has said he would cut federal spending to make up for the loss of revenue, but most analysts assume the government would have to borrow more money to make up for the taxes not collected.

When governments borrows more, their trade deficits — the difference between imports and exports — tends to increase. In a brief analysis recently, Len Burman, director of the nonpartisan Tax Policy Center, estimated that Trump’s tax plan could double the trade deficit.

Predicting the consequences of Trump’s policies is difficult, both because the international economy is immensely complicated and because Trump sometimes has been vague and inconsistent about what he would do if elected. In any case, the fact that Trump’s proposal for tax relief could increase the trade deficit illustrates an important connection between the federal budget and global commerce.

For decades, Americans have imported more relative to exports when federal borrowing increases. This surprising relationship is reflected in the U.S. “current account balance,” an alternative measure of foreign trade that is almost identical to the U.S. trade deficit.

Measured as a share of the size of the overall economy, the current account balance generally has remained within 2 percentage points of the federal budget deficit since at least 1960.

It is not just the United States. 

Continue Reading