President Donald Trump has been trying to reduce the trade gap between the United States and the rest of the world. However, despite being a policy priority, the gap has continued to widen, demonstrating just how difficult it is to balance trade. The Commerce Department reports that the trade gap increased by 9.5 percent in July, widening for the second month in a row and reaching the highest point in three years.
The United States’ trade deficits with China and the European Union have reached all-time highs. Both have been targeted by Trump-approved sanctions. Soybeans in particular have become a point of contention, but that should come as no surprise. China has targeted soybeans in retaliation for tariffs on Chinese-made goods.
Stock markets are up roughly 30 percent under the Trump administration and have been trading at or near record highs. This has helped people bolster their retirement accounts and investment portfolios. However, some analysts fear that a trade war could depress stock markets and possibly trigger a steep decline.
While Trump’s tariffs have eaten up headlines, they’ve involved sums that, in the grand scheme of international trade, are relatively small. Trump’s tariffs against China, for example, targeted just $50 billion dollars worth of imports, slightly less than 10 percent of the $505 billion worth of goods imported in 2017.
However, the next round of tariffs will be much more substantial if Trump presses ahead. The President is looking to target another $200 billion worth of Chinese goods. The tariffs won’t guarantee that imports from China will drop because China has been devaluing its currency, which makes it cheaper to buy Chinese-made goods with American dollars.
Now many analysts are expecting Trump to ratchet up efforts to balance trade. This could mean more tariffs and tougher negotiations. Trump has managed to wring some concessions out of Mexico and has brought the European Union back to the negotiating table. Still, some countries, like China, have refused to budge.
It’s possible that the continued tit-for-tat trade skirmishes could devolve into a full-blown conflict. What that would mean for markets is hard to predict, but turbulence would be all but certain.
