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The Persisting US Trade Deficit: Is Protectionistm the Right Answer?

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  • Fiorentini, Riccardo

    (Department of Economics, University of Verona, Italy)

Abstract

On January 22, 2018, the Trump administration imposed tariffs on $8.5 billion of imports of solar panel and $1.8 billion for washing machines. This move marked the beginning of what is now considered a trade war the USA is fighting against China and other traditional American trade partners. The “official” motivation for President Trump’s trade war is that the persisting US trade deficit depends on “unfair competition” by trade partners. Tariffs are therefore seen as a political tool for levelling the field of international trade. In this paper we present and discuss two main objections to this view: the first is that current and trade account disequilibria are ultimately due to differences between domestic savings and investments driven by macroeconomic fundamentals which in general do not depend only on the trade policies of foreign countries. The second objection consists in the fact that the role of the US dollar as the “world’s money” in the current asymmetric international monetary system makes the US trade deficit both inevitable and sustainable in the long run. Protectionist measures may reduce bilateral deficits but cannot eliminate the overall structural trade deficit unless they permanently affect the domestic savings-investment balance. Il persistente disavanzo estero degli USA: la risposta giusta è il protezionismo? Il 22 gennaio 2018 l’Amministrazione Trump diede inizio a una guerra commerciale con la Cina e diversi tradizionali alleati degli USA imponendo dazi sulle importazioni di per un valore di 1,8 miliardi di dollari. La motivazione “ufficiale” della guerra commerciale del Presidente Trump è che il disavanzo commerciale di lungo periodo degli Stati Uniti è causato da politiche competitive “sleali” messe in campo dagli altri paesi. In questo lavoro presentiamo due obbiezioni principali a questa tesi. La prima è che gli squilibri commerciali di un paese sono in ultima analisi causati dalle differenze tra risparmio e investimento aggregato a loro volta guidati da variabili macroeconomiche interne che in generale non dipendono dalle politiche commerciali dagli altri paesi. La seconda obbiezione è che il ruolo chiave del dollaro nell’attuale sistema monetario mondiale asimmetrico rende il disavanzo estero degli USA inevitabile ma nel contempo sostenibile nel lungo periodo. Politiche protezionistiche possono ridurre deficit bilaterali ma non possono eliminare un disavanzo complessivo a meno che non riescano ad influenzare in modo permanente il saldo interno tra risparmio e investimento.

Suggested Citation

  • Fiorentini, Riccardo, 2020. "The Persisting US Trade Deficit: Is Protectionistm the Right Answer?," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 73(2), pages 155-186.
  • Handle: RePEc:ris:ecoint:0868
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    More about this item

    Keywords

    Protectionism; Trade Deficit; Tariffs; Trump; Dollar; Savings; Investments;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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