At the G-7 summit last week, Donald Trump glad-handed and posed for photo ops with leaders including German Chancellor Angela Merkel. Tuesday, however, he had some harsh words for Merkel's Germany.
"We have a MASSIVE trade deficit with Germany, plus they pay FAR LESS than they should on NATO & military. Very bad for U.S. This will change," he tweeted on Tuesday morning.
That "MASSIVE" trade deficit is what we're going to focus on here. Trump often brings up trade deficits with other countries, but economists say that this is the wrong way to think about trade deficits. Moreover, to cast trade deficits as uniformly bad — as some sort of score of who's winning and losing in global economics — ignores the substantial gains that countries make from trade.
A trade deficit results when a country imports more than it exports — that is, it buys more from the rest of the world than it sells to the rest of the world. Trump is talking here about what is called a bilateral trade deficit — a trade deficit that describes only what two countries buy from and sell to each other.
"Massive" may be in the eye of the beholder here. The U.S. ran a trade deficit of around $65 billion with Germany in 2016. That's substantial — around one-eleventh of the total U.S. trade deficit — but it's not gargantuan. The U.S. deficit with China, by comparison, was $347 billion in that year. And the total U.S. trade deficit was around $734 billion.
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