Trump takes aim at trade deficits. Are they actually bad?

Summary

Consider This from NPR: Trump Takes Aim at Trade Deficits – Are They Actually Bad?

Release Date: April 3, 2025
Host: Ailsa Chang
Guest: Jason Furman, Harvard University Economist and Former Economic Adviser to President Obama

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Introduction

In the April 3, 2025 episode of NPR's Consider This, host Ailsa Chang delves into President Donald Trump's renewed focus on trade deficits. The episode examines Trump's latest tariff announcements, their historical context, and the broader economic implications. Central to the discussion is whether trade deficits are inherently detrimental to the U.S. economy.

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Trump's Renewed Focus on Tariffs

The episode opens with Ailsa Chang highlighting President Trump's persistent emphasis on trade deficits and tariffs. Chang notes that Trump's commitment to tariffs is longstanding, referencing his appearance on the Oprah Winfrey Show in 1988:

• Ailsa Chang [00:00]: "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."
• Donald Trump [00:14]: "Great consistency, actually, because I've been talking about it for 40 years..."

Trump argues that trade deficits have been a consistent issue for decades, advocating for tariffs as a solution to protect American industries. During his recent announcement in the Rose Garden, Trump declared:

• Donald Trump [01:13]: "We have a $500 billion deficit, trade deficit with China. We're going to turn it around and we have the cards."

This marks a significant escalation from his first term, where tariffs amounted to nearly $400 billion across thousands of products. In his current term, Trump has introduced tariffs ranging from 10% to 50% on imports from virtually every country, including critical sectors like automobiles and steel.

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Impact of Trump's Tariffs on Markets and Political Landscape

Chang emphasizes the immediate repercussions of Trump's tariff announcements:

• Ailsa Chang [02:10]: "The markets have plunged since his announcement. Other countries have promised to retaliate. Members of his own party have spoken out against these tariffs."

The aggressive tariff strategy has led to market instability, international retaliation, and dissent within Trump's own party, highlighting the high stakes of his trade policies.

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Expert Analysis: Is a Trade Deficit Bad?

To unpack the complexities of trade deficits, Chang interviews Jason Furman, a respected economist from Harvard University and former economic adviser to President Obama.

Defining Trade Deficit:

• Jason Furman [04:57]: "A trade deficit is when you pay more money to another country in exchange for the stuff you're buying from them. Then they pay you in exchange for the things that they buy from you."

Are Trade Deficits Harmful?

Furman challenges Trump's core premise by arguing that trade deficits are not inherently bad:

• Jason Furman [05:16]: "The one thing that is definitely not bad is trade deficits with any individual country... 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."

He contends that the U.S. benefits financially from trade deficits because foreign investments in the U.S. economy, such as financing government debt and building factories, return more value than American investments abroad.

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The Case Against Tariffs

Furman provides a critical perspective on Trump's tariff strategy, emphasizing the unintended consequences:

Tariffs as Self-Imposed Taxes:

• Jason Furman [06:58]: "Tariffs are a tax on yourself, so it's not obvious that you want them to be higher."

He points out that while the U.S. has relatively low tariffs compared to countries like China and India, increasing them indiscriminately can harm the economy by raising costs for American businesses and consumers.

Impact on Manufacturing Jobs:

Addressing the argument that tariffs will revive manufacturing jobs, Furman counters:

• Jason Furman [08:15]: "The United States is producing more than it's ever produced in manufacturing. It's just doing it with fewer people, and that's because of the enormous increase in productivity growth."

He argues that tariffs targeting low-skill manufacturing jobs, such as those in clothing and footwear, do not align with the high-skill, high-value manufacturing that benefits the U.S. economy, like aerospace and technology sectors.

Economic Forecast and Long-Term Consequences:

Furman outlines the potential negative outcomes of Trump's expansive tariff plan:

• Jason Furman [10:33]: "Almost every economic forecaster has lowered their forecast of growth quite a lot... Almost every economic forecaster has raised their forecast for inflation. And American families should expect to see higher prices basically starting almost right away."

He warns of disrupted global supply chains, increased costs for American businesses, retaliatory tariffs from other nations, and a shift in global trade patterns away from the U.S.

Effects on Global Trade and Corporate Strategies:

Furman anticipates significant changes in global trade dynamics:

• Jason Furman [11:26]: "Term consequences you're going to see less global trade... Companies will move their factories from China to other countries."

He suggests that companies will seek to mitigate the impact of U.S. tariffs by relocating manufacturing to countries with lower tariffs, thereby diminishing the U.S.'s role in global value chains.

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Conclusion

The episode concludes with a clear stance: while Trump's tariff policies aim to address trade deficits, seasoned economists like Jason Furman argue that trade deficits are not inherently harmful and that tariffs may do more harm than good. The broader consensus among economic forecasters suggests that Trump's aggressive tariff strategy could lead to slower economic growth, higher inflation, and a reshaping of global trade away from the United States.

As the episode wraps up, listeners are left to consider the complex interplay between trade policies and economic health, questioning whether Trump's approach will ultimately benefit or undermine the U.S. economy.

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Notable Quotes

• Donald Trump [00:14]: "Great consistency, actually, because I've been talking about it for 40 years..."
• Donald Trump [01:13]: "We have a $500 billion deficit, trade deficit with China. We're going to turn it around and we have the cards."
• Jason Furman [05:16]: "The one thing that is definitely not bad is trade deficits with any individual country..."
• Jason Furman [06:58]: "Tariffs are a tax on yourself, so it's not obvious that you want them to be higher."
• Jason Furman [08:15]: "The United States is producing more than it's ever produced in manufacturing. It's just doing it with fewer people..."
• Jason Furman [10:33]: "Almost every economic forecaster has lowered their forecast of growth quite a lot... American families should expect to see higher prices basically starting almost right away."

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Production Credits

• Producer: Connor Donovan
• Editor: Courtney Dorning
• Executive Producer: Sami Yenigun

Consider This from NPR is produced by Ailsa Chang, providing insightful analysis on pressing economic and political issues.

Transcript

[Ailsa Chang]

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.

[Donald Trump]

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, 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.

[Ailsa Chang]

It's true. He's been talking about this for years. Here he is on the Oprah Winfrey show back in 1988.

[Oprah Winfrey]

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.

[Ailsa Chang]

You see, these are poor beliefs for Donald Trump. Trade deficits are bad. Other countries are taking advantage of the US Tariffs are the way to fix all of this. These beliefs shaped his whole first presidential campaign.

[Donald Trump]

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.

[Ailsa Chang]

These same beliefs shaped his first presidential term.

[Donald Trump]

I am taking action to impose safeguard tariffs on imported residential washing machines and all solar products.

[Ailsa Chang]

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, and across the board tariff on all imports from virtually every single country, ranging from 10% to as high as 50%.

[Donald Trump]

I say to the leaders, look, you gotta 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.

[Ailsa Chang]

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 Ailsa changing.

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[Ailsa Chang]

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 adviser 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.

[Jason Furman]

A trade deficit is when you pay more money to another country in exchange for the stuff you're buying from them. Then they pay you in exchange for the things that they buy from you.

[Ailsa Chang]

Okay. And then from an economist's point of view, then, is it bad for the US to have a trade deficit?

[Jason Furman]

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.

[Ailsa Chang]

Okay. And if the US Is, is continually paying more for imports than the US Receives for exports, explain why the US does not run out of money.

[Jason Furman]

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.

[Ailsa Chang]

Okay. And just to bring the tariff piece into all of this, it is true that the US 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 US Gotten anything in exchange for those lower tariff rates?

[Jason Furman]

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 the Chinas and Indias 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.

[Ailsa Chang]

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 US 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 tariffs might mean slightly higher prices and lower profits?

[Jason Furman]

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, 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.

[Ailsa Chang]

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?

[Jason Furman]

The difference is the scale and the lack of focus. In his first term, he, 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.

[Ailsa Chang]

So with tariffs increased at the scale that President Trump wants to increase them, what do you see is going to be the outcome?

[Jason Furman]

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 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.

[Ailsa Chang]

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 on that front. What do you think is the long.

[Jason Furman]

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.

[Ailsa Chang]

Jason Furman with Harvard University, thank you very much for joining us today.

[Jason Furman]

Thanks for having me.

[Ailsa Chang]

This episode was produced by Connor Donovan. It was edited by Courtney Dorning. Our executive producer is Sami Yenigun. Foreign It's Consider this from npr. I'm Ailsa Chang.

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