America’s trade deficit

After tax cuts, watch America’s trade deficit surge

More government borrowing from the new tax plan will likely boost the U.S. trade gap despite Trump's wishes, former U.S. trade chief Michael Froman says in the latest POLITICO Money podcast.

By BEN WHITE

The giant tax-cut bill heading toward the White House is going to make something President Donald Trump hates — the U.S. trade deficit — much worse, according to former President Barack Obama’s top trade negotiator.

“The irony is if the Trump administration is successful in pursuing a number of its policies, including this tax cut, which will reduce savings by $1.5 trillion, we are going to see the trade deficit increase, not decrease,” said Michael Froman, the U.S. trade representative under Obama, in the latest POLITICO Money podcast.

If Trump succeeds in creating sustained 3 percent economic growth, Froman added, it will also likely lead to Americans spending more on foreign-made goods — also boosting the nation's trade deficit.

“So if you are going to make the trade deficit the be-all and end-all of your economic policy, you are going to be setting yourself up for failure,” he said.

During the 2016 election and since taking office, Trump has repeatedly railed against U.S. trade deficits with Mexico, China and other nations, arguing they mean the U.S. is losing out.

His administration rejected the Trans-Pacific Partnership, largely negotiated by Froman, and is currently renegotiating NAFTA and threatening to unilaterally withdraw from the deal.

Froman said rejecting TPP, which included renegotiated trade terms with Mexico and Canada, was a historic blunder that will damage the U.S. for decades as China supplants America as the leader on trade deals in the Pacific region.

“There’s no doubt in my mind that, in retrospect, historians will view the U.S. withdrawal from TPP as one of the most significant strategic blunders in recent years,” he said. “And we are seeing exactly what we warned about, that it would create a void that China would be all too willing to fill and other countries would move on without us, and that’s exactly what’s happening now.”

Froman said that while leadership in both parties now scores political points by ripping trade deals, the American public more broadly is much less skeptical of them.

“I actually think the American public sometimes gets it better than the leaders of the respective parties or the activists of each of the parties,” he said. “More than 70 percent of the American public support trade. And the most pro-trade cohort are young Democrats, and the least pro-trade cohort are middle-aged Republicans, and we saw that play out a bit in the last election.”

Froman added that trade deals like TPP and NAFTA have become convenient political punching bags for the irreversible impacts of technology and globalization on jobs and incomes.

“The economic concerns that people have about wage stagnation, about income inequality, those are real and legitimate,” he said. “Economists will tell us that the vast majority of the effect on wages and jobs, over 80 percent, is due to technology. And certainly, some percentage is due to globalization, but there is a difference between globalization and trade agreements. Globalization is a fact of life. Trade agreements are how you shape globalization.”