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Based on this morning’s data from the Census Bureau, one could be forgiven for imagining that the trade tariffs implemented under the Trump administration – and kept largely intact under Biden – are working. The US goods deficit in the first nine months of the year shrank relative to the same period in 2022. And although Mexico’s share of US merchandise imports dipped slightly relative to China’s in September, it remained well ahead on a 12-month rolling average basis.

Calls to eliminate trade deficits by applying across-the-board 10-percent tariffs – growing louder on the campaign trail ahead of the 2024 election – have a certain ring of plausibility.

But we know that the energy trade balance – driven by a shale boom that began in the mid-aughts and exports spurred by the war in Ukraine – has moved into marginally-positive territory. It is also clear that American consumer spending patterns shifted in the last year, with outlays on services growing relative to tangible products.

From a broader perspective, we can see that voracious US demand for foreign products continues to outweigh the world’s appetite for American-made goods, with deficits running far higher than levels hit before the tariffs were implemented.

From a more speculative perspective, taking recent supply chain analysis from the Bank for International Settlements and China’s own trade data – which shows the country running near-record surpluses – in combination, it seems likely that a significant share of Chinese-manufactured products are going through some form of transshipment – undergoing modest processing efforts in other countries before moving indirectly into the United States.

Defying centuries of experience and both the theory and practice of international trade, policymakers have engaged in a performative game of whack-a-mole, moving trade imbalances around geographically without addressing their root causes. Until the tax and investment incentives which currently encourage American households and governments to spend beyond their means are reversed – against undoubtedly strident opposition from entrenched interests, and in conflict with China’s access to US capital markets – massive trade deficits and persistent financial imbalances will likely remain features of the global economy.

The rest of us will just have to learn to keep our heads down.

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