Trump’s stimulus would reduce national savings, worsening the trade gap
Many U.S. Businesses Struggle to Find Mexican Workers
Immigration from Mexico was a hot-button issue on the presidential campaign trail. But some business owners, like Joe Hargrave, are struggling to hire enough staff because of a shortage of workers from Mexico. Video/Photo: Jake Nicol/The Wall Street Journal
The so-called net national saving rate — the depreciation-adjusted sum of business, household, and government saving — stood at just 2.4% of national income in mid-2016. While that’s an improvement from the unprecedented negative saving position in 2008-2011, it remains far short of the 6.3% average that prevailed over the final three decades of the twentieth century.
This is important because it explains the pernicious trade deficits that Trump continues to rail against. Lacking in saving and wanting to grow, the United States must import surplus saving from abroad. And the only way to attract that foreign capital is by running massive current-account and trade deficits.
The numbers bear this out: since 2000, when national saving fell well below trend, the current-account deficit has widened to an average of 3.8% of gross domestic product — nearly four times the 1% gap from 1970 to 1999. Similarly, the net export deficit — the broadest measure of a country’s trade imbalance — has been 4% of GDP since 2000, versus an average of 1.1% over the final three decades of the twentieth century.
Trumponomics has the cause and effect behind this development backwards. It fixates on country-specific sources of the trade deficit, like China and Mexico, but misses the fundamental point that these bilateral deficits are symptoms of America’s far deeper saving problem.
Presume for the moment that the U.S. closes down trade with China and Mexico — the first and fourth largest components of the overall trade deficit — through a combination of tariffs and other protectionist measures (including the proposed renegotiation of NAFTA and a Mexican-funded border wall).
Without addressing America’s chronic saving shortage, the Chinese and Mexican components of the trade deficit would simply be redistributed to other countries — most likely to higher-cost producers. The result would be the functional equivalent of a tax hike on beleaguered middle-class U.S. families.
In short, there is no bilateral fix for a multilateral problem. The U.S. had trade deficits with 101 countries in 2015 — a multilateral problem stemming from a saving shortfall that cannot be effectively addressed through country-specific “remedies.”
That’s not to say that America’s trading partners should be let off the hook for unfair practices. But it does mean that there is limited hope for resolving seemingly chronic trade deficits — and the related erosion of domestic hiring traceable to these imbalances — if the U.S. doesn’t start saving again.
Alas, this plot is about to thicken.
Trumponomics seems likely to exacerbate America’s saving shortfall in the years ahead. Analyses by the Tax Policy Center, the Tax Foundation, and Moody’s Analyticsall indicate that federal budget deficits under Trump’s economic plan are headed back toward at least 7% of GDP over the next 10 years.
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