Donald Trump gave his much-watched Liberation Day Tariff event on Wednesday. Most observers thought that his announcement of a universal 10% tariff on goods entering the US was harsher than they expected.
Trump wants to use these tariffs to increase manufacturing in the United States, lower his trade deficit, and offset planned tax reductions. The United Auto Workers (UAW), who celebrated NAFTA’s end and tariffs, can be explained by this.
A closer look at the history of this country and common sense will show that Trump is unlikely to achieve his goals. These tariffs, in particular, will worsen the US trade imbalance.
Why there is a huge trade deficit in the US
Donald Trump included, the trade deficit is simply the difference between exports and imports.
If a country imports more than it exports, it has a big trade deficit. Three main factors have led to the US exporting less in recent years. The cost of doing businesses in the US has increased, and many companies pay their workers more than $20 per hour.
The US’s past trade agreements made it easy for businesses to move their factories to countries that were cheaper, like China or Mexico.
Thirdly, it has placed restrictions on advanced US products. It has, for example, prohibited companies such as NVIDIA Micron and Intel from supplying products to China and Russia.
To narrow the US deficit, we need to increase our exports while reducing imports.
The trade deficit will rise due to Trump’s tariffs
History shows us that tariffs are not effective. You may recall that Trump increased tariffs against China in his first term. China’s current account deficit is still substantial. China’s surplus was $295 billion in 2024. This is higher than $279 billion a year before.
Biden didn’t remove Trump’s tariffs during his first term. The US total trade deficit continued to grow. The deficit increased from $500 billion to $918.6 billion.
Trump’s tariffs are also likely to make American products more expensive, and less competitive internationally. These tariffs are applied to all products, even raw materials.
Airbus and Boeing are two good examples. Airbus, in this instance will spend less on aluminium and steel than Boeing because the EU does not impose a tariff of 25% on these metals. Boeing’s market share will continue to decline in the aviation sector.
Automobiles is another good example. US automakers will have to increase their prices in order to cover higher costs. This makes them less competitive internationally. The US auto industry is notable because it will sell vehicles valued at $178 billion by 2024.
The third group of US trading partners has announced actions to counter US tariffs. They are targeting the industries in which US companies do business and that can be easily replaced. As an example, China may place restrictions on US agricultural products, explaining why Trump wants another bailout for the sector.
As a reaction to tariffs, some countries, especially Europeans may increase their imports of energy from other nations. They can, for example, switch from US-based countries to those in the Middle East.
The solution to the US Trade Deficit Crisis
US trade deficit could worsen over time. Tariffs, however, are not the answer. The US should instead work on reducing the costs of doing business and removing the protectionist policies which have been in place for some time.
Reduced business costs include reducing unnecessary regulations which make building in the US more difficult.
The removal of trade restrictions would increase sales, and Beijing’s dependence on US technology. In fact, the restrictions placed on China’s sales have pushed it to build its own products and then export them cheaply.
Joe Biden’s CHIPS Act is a great way to lower the deficit, as it makes the US more competitive in high-tech.
Will Trump’s Tariffs End the US Trade Deficit of $1 Trillion? The post Will Trump’s tariffs end the US $1 trillion trade deficit?
