Trump seeks to overhaul the economic order in which u s is dominant player

Trump seeks to overhaul the economic order in which u s is dominant player

Economists are puzzled to see the U.S. President trying to overhaul the existing economic order and doing it so soon after inheriting the strongest economy in the world; experts point out that many of the trading partners Trump accuses of ripping off U.S. businesses were already floundering.

By declaring a trade war on the rest of the world, U.S. President Donald Trump has panicked global financial markets, raised the risk of a recession, and broken the political and economic alliances that made much of the world stable for business after the Second World War.

Mr. Trump’s latest round of tariffs went into full effect on Wednesday midnight, with higher import tax rates on dozens of countries and territories taking hold.

Economists are puzzled to see Mr. Trump trying to overhaul the existing economic order and doing it so soon after inheriting the strongest economy in the world. Many of the trading partners he accuses of ripping off U.S. businesses and workers were already floundering.

“There is a deep irony in Trump claiming unfair treatment of the American economy at a time when it was growing robustly while every other major economy had stalled or was losing growth momentum,” said Eswar Prasad, professor of trade policy at Cornell University. “In an even greater irony, the Trump tariffs are likely to end America’s remarkable run of success and crash the economy, job growth and financial markets.’’

Mr. Trump and his trade advisers insist that the rules governing global commerce put the U.S. at a distinct disadvantage. But mainstream economists — whose views Mr. Trump and his advisers disdain — say the President has a warped idea of world trade, especially a preoccupation with trade deficits, which they say do nothing to impede growth.

The administration accuses other countries of erecting unfair trade barriers to keep out American exports and using underhanded tactics to promote their own.

In Mr. Trump’s telling, his tariffs are a long-overdue reckoning: The U.S. is the victim of an economic mugging by Europe, China, Mexico, Japan, and even Canada.

It is true that some countries charge higher taxes on imports than the U.S. does. Some manipulate their currencies lower to ensure that their goods are price-competitive in international markets. Some governments lavish their industries with subsidies to give them an edge.

However, the U.S. is still the second-largest exporter in the world, after China. The U.S. exported $3.1 trillion of goods and services in 2023, far ahead of third-place Germany at $2 trillion.

Market meltdown

The fear that Mr. Trump’s remedies are deadlier than the maladies he is trying to cure has sent investors fleeing American stocks. Since Mr. Trump announced sweeping import taxes on April 2, the S&P 500 has cratered 12%.

Mr. Trump and his advisers point to America’s lopsided trade numbers — year after year of huge deficits — as proof of foreigners’ perfidy. He is seeking to restore justice and millions of long-gone U.S. factory jobs by taxing imports at rates not seen in America since the days of the horse and buggy.

“They have taken so much of our wealth away from us,” the President declared last week at a White House Rose Garden ceremony to celebrate the tariffs announcement. “We are not going to let that happen. We truly can be very wealthy. We can be so much wealthier than any country.’’

But the U.S. is already the wealthiest major economy in the world. And the International Monetary Fund in January forecast that the country would outgrow every other major advanced economy this year.

China and India did grow faster than the U.S. over the past decade, but their living standards still do not come close to those in the U.S.

Mr. Trump views tariffs as an all-purpose economic fix that will protect American industries, encourage companies to open factories in America, raise money for the U.S. Treasury, and give him leverage to bend other countries to his will, even on issues that have nothing to do with trade, such as drug trafficking and immigration.

Question of deficits

The President also sees a smoking gun: The U.S. has bought more from other countries than it has sold them every year for the past half-century. In 2024, the U.S. trade deficit in goods and services came to a whopping $918 billion, the second-highest amount on record.

Mr. Trump’s trade adviser Peter Navarro calls America’s trade deficits “the sum of all cheating’’ by other countries.

However, economists say trade deficits are not a sign of national weakness. The U.S. economy has nearly quadrupled in size, adjusted for inflation, during that half-century of trade deficits.

“There is no reason to think that a bigger trade deficit means lower growth,” said former IMF chief economist Maurice Obstfeld, senior fellow at the Peterson Institute of International Economics and an economist at the University of California, Berkeley. “In fact, the opposite is closer to the truth in many countries.”

A trade deficit Ms. Obstfeld said, does not mean a country is losing through trade or being “ripped off.”

The faster the U.S. economy grows, in fact, the more imports Americans tend to buy and the wider the trade deficit tends to get. The U.S. trade deficit — the gap between what it sells and what it buys from foreign countries — hit a record $945 billion in 2022 as the American economy roared back from COVID-19 lockdowns. Trade deficits typically fall sharply in recessions.

Nor are trade deficits primarily inflicted on America by other countries’ unfair trading practices. To economists, they are a homegrown product, the result of Americans’ propensity to save little and consume more than they produce.

“It is not like the rest of the world has been ripping us off for decades,” said Jay Bryson, chief economist at Wells Fargo. “It is because we do not save enough.”