IDEAS home Printed from https://ideas.repec.org/p/ver/wpaper/03-2019.html
   My bibliography  Save this paper

The persisting US trade deficit Is protectionism the right answer?

Author

Listed:
  • Riccardo Fiorentini

    (Department of Economics (University of Verona))

Abstract

On January 22, 2018, the Trump administration imposed Safeguard 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 such as EU and NAFTA members states. The “official” motivation for 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. Unless protectionist measures permanently affect the domestic savings-investment balance they alone cannot eliminate a structural trade deficit.

Suggested Citation

  • Riccardo Fiorentini, 2019. "The persisting US trade deficit Is protectionism the right answer?," Working Papers 03/2019, University of Verona, Department of Economics.
  • Handle: RePEc:ver:wpaper:03/2019
    as

    Download full text from publisher

    File URL: http://dse.univr.it/home/workingpapers/wp2019n3.pdf
    File Function: First version
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Eichengreen, Barry & Irwin, Douglas A., 2010. "The Slide to Protectionism in the Great Depression: Who Succumbed and Why?," The Journal of Economic History, Cambridge University Press, vol. 70(4), pages 871-897, December.
    2. Douglas A. Irwin, 2017. "Clashing over Commerce: A History of U.S. Trade Policy," NBER Books, National Bureau of Economic Research, Inc, number irwi-2.
    3. Robert C. Johnson & Guillermo Noguera, 2017. "A Portrait of Trade in Value-Added over Four Decades," The Review of Economics and Statistics, MIT Press, vol. 99(5), pages 896-911, December.
    4. David Hummels & Jakob R. Munch & Chong Xiang, 2018. "Offshoring and Labor Markets," Journal of Economic Literature, American Economic Association, vol. 56(3), pages 981-1028, September.
    5. Barattieri, Alessandro, 2014. "Comparative advantage, service trade, and global imbalances," Journal of International Economics, Elsevier, vol. 92(1), pages 1-13.
    6. Kyle Handley & Fariha Kamal & Ryan Monarch, 2020. "Rising Import Tariffs, Falling Export Growth: When Modern Supply Chains Meet Old-Style Protectionism," NBER Working Papers 26611, National Bureau of Economic Research, Inc.
    7. Kyle Handley & Fariha Kamal & Ryan Monarch, 2020. "Rising Import Tariffs, Falling Export Growth: When Modern Supply Chains Meet Old-Style Protectionism," NBER Working Papers 26611, National Bureau of Economic Research, Inc.
    8. Redding, Stephen & Amiti, Mary & Weinstein, David, 2019. "The impact of the 2018 trade war on U.S. prices and welfare," LSE Research Online Documents on Economics 102619, London School of Economics and Political Science, LSE Library.
    9. Blanchard,Emily J. & Bown,Chad P. & Johnson,Robert Christopher & Blanchard,Emily J. & Bown,Chad P. & Johnson,Robert Christopher, 2016. "Global supply chains and trade policy," Policy Research Working Paper Series 7536, The World Bank.
    10. Alberto Cavallo & Gita Gopinath & Brent Neiman & Jenny Tang, 2021. "Tariff Pass-Through at the Border and at the Store: Evidence from US Trade Policy," American Economic Review: Insights, American Economic Association, vol. 3(1), pages 19-34, March.
    11. Richard H. Clarida, 2007. "G7 Current Account Imbalances: Sustainability and Adjustment," NBER Books, National Bureau of Economic Research, Inc, number clar06-2.
    12. Astley, Mark & Giese, Julia & Hume, Michael & Kubelec, Chris, 2009. "Global imbalances and the financial crisis," Bank of England Quarterly Bulletin, Bank of England, vol. 49(3), pages 178-190.
    13. Meixin Guo & Lin Lu & Liugang Sheng & Miaojie Yu, 2018. "The Day After Tomorrow: Evaluating the Burden of Trump's Trade War," Asian Economic Papers, MIT Press, vol. 17(1), pages 101-120, Winter/Sp.
    14. Jonathan A. Parker, 2000. "Spendthrift in America? On Two Decades of Decline in the U.S. Saving Rate," NBER Chapters, in: NBER Macroeconomics Annual 1999, Volume 14, pages 317-387, National Bureau of Economic Research, Inc.
    15. Chad P. Bown & Douglas Irwin, 2018. "What Might a Trump Withdrawal from the World Trade Organization Mean for US Tariffs?," Policy Briefs PB18-23, Peterson Institute for International Economics.
    16. Robert Z. Lawrence, 2008. "Blue-Collar Blues: Is Trade to Blame for Rising US Income Inequality?," Peterson Institute Press: Policy Analyses in International Economics, Peterson Institute for International Economics, number pa85, July.
    17. Caporale, Guglielmo Maria & Costantini, Mauro & Paradiso, Antonio, 2013. "Re-examining the decline in the US saving rate: The impact of mortgage equity withdrawal," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 26(C), pages 215-225.
    18. Teresa C. Fort, 2017. "Technology and Production Fragmentation: Domestic versus Foreign Sourcing," Review of Economic Studies, Oxford University Press, vol. 84(2), pages 650-687.
    19. Mattoo,Aaditya & Staiger,Robert W., 2019. "Trade Wars : What Do They Mean ? Why Are They Happening Now ? What Are the Costs ?," Policy Research Working Paper Series 8829, The World Bank.
    20. Lawrence Summers & Chris Carroll, 1987. "Why Is U.S. National Saving So Low?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 18(2), pages 607-642.
    21. Lionel Fontagné & Cecilia Bellora, 2019. "Shooting oneself in the foot? US trade policy coping with Global Value Chains," Post-Print hal-02128135, HAL.
    22. Raghuram G. Rajan, 2010. "Fault Lines: How Hidden Fractures Still Threaten the World Economy," Economics Books, Princeton University Press, edition 1, number 9111, April.
    23. Douglas A. Irwin, 2017. "Introduction to "Clashing over Commerce: A History of U.S. Trade Policy"," NBER Chapters, in: Clashing over Commerce: A History of U.S. Trade Policy, pages 1-27, National Bureau of Economic Research, Inc.
    24. Timothy J. Kehoe & Kim J. Ruhl & Joseph B. Steinberg, 2018. "Global Imbalances and Structural Change in the United States," Journal of Political Economy, University of Chicago Press, vol. 126(2), pages 761-796.
    25. Georg Dettmann, 2011. "A View on Global Imbalances and their Contribution to the Financial Crisis," Birkbeck Working Papers in Economics and Finance 1102, Birkbeck, Department of Economics, Mathematics & Statistics.
    26. Benedikt Zoller-Rydzek & Gabriel Felbermayr, 2018. "Who is Paying for the Trade War with China?," EconPol Policy Brief 11, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    27. Douglas A. Irwin, 2019. "U.S. Trade Policy in Historical Perspective," NBER Working Papers 26256, National Bureau of Economic Research, Inc.
    28. Richard H. Clarida, 2007. "Introduction to "G7 Current Account Imbalances: Sustainability and Adjustment"," NBER Chapters, in: G7 Current Account Imbalances: Sustainability and Adjustment, pages 1-10, National Bureau of Economic Research, Inc.
    29. William G. Gale & John Sabelhaus, 1999. "Perspectives on the Household Saving Rate," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 30(1), pages 181-224.
    30. Karyne B. Charbonneau & Anthony Landry, 2018. "The Trade War in Numbers," Staff Working Papers 18-57, Bank of Canada.
    31. Georgios Georgiadis & Johannes Gräb, 2016. "Growth, Real Exchange Rates and Trade Protectionism since the Financial Crisis," Review of International Economics, Wiley Blackwell, vol. 24(5), pages 1050-1080, November.
    32. Michael A. Kouparitsas, 2004. "How worrisome is the U.S. net foreign debt position?," Chicago Fed Letter, Federal Reserve Bank of Chicago, issue May.
    33. Robert Z. Lawrence, 2018. "Five Reasons Why the Focus on Trade Deficits Is Misleading," Policy Briefs PB18-6, Peterson Institute for International Economics.
    34. Marcus Noland, 2018. "US Trade Policy in the Trump Administration," Asian Economic Policy Review, Japan Center for Economic Research, vol. 13(2), pages 262-278, July.
    35. Riccardo Fiorentini & Guido Montani, 2012. "The New Global Political Economy," Books, Edward Elgar Publishing, number 14443.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Riccardo Fiorentini & Guido Montani, 2012. "The New Global Political Economy," Books, Edward Elgar Publishing, number 14443.
    2. Bekkers, Eddy & Schroeter, Sofia, 2020. "An economic analysis of the US-China trade conflict," WTO Staff Working Papers ERSD-2020-04, World Trade Organization (WTO), Economic Research and Statistics Division.
    3. Riccardo Fiorentini, 2011. "Global Imbalances, the International Crisis and the Role of the Dollar," Working Papers 18/2011, University of Verona, Department of Economics.
    4. World Bank, 2020. "World Bank East Asia and Pacific Economic Update, April 2020," World Bank Other Operational Studies, The World Bank, number 33477, March.
    5. Cecilia Bellora & Lionel Fontagné, 2019. "Shooting Oneself in the Foot? Trade War and Global Value Chains," Working Papers 2019-18, CEPII research center.
    6. Cecilia Bellora & Lionel Fontagné, 2019. "Shooting Oneself in the Foot? Trade War and Global Value Chains," Working Papers 2019-18, CEPII research center.
    7. van Treeck, Till. & Sturn, Simon., 2012. "Income inequality as a cause of the Great Recession? : A survey of current debates," ILO Working Papers 994709343402676, International Labour Organization.
    8. Pol Antràs, 2020. "De-Globalisation? Global Value Chains in the Post-COVID-19 Age," NBER Working Papers 28115, National Bureau of Economic Research, Inc.
    9. Nina Boberg-Fazlic & Markus Lampe & Maja Uhre Pedersen & Paul Sharp, 2021. "Pandemics and protectionism: evidence from the “Spanish” flu," Palgrave Communications, Palgrave Macmillan, vol. 8(1), pages 1-9, December.
    10. Freund,Caroline & Maliszewska,Maryla & Mattoo,Aaditya & Ruta,Michele, 2020. "When Elephants Make Peace : The Impact of the China-U.S. Trade Agreement on Developing Countries," Policy Research Working Paper Series 9173, The World Bank.
    11. Jason H. Grant & Kathryn A. Boys & Chaoping Xie, 2021. "A new president in the White House: implications for Canadian agricultural trade," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 69(1), pages 45-58, March.
    12. Akin A. Cilekoglu & Rosina Moreno & Raul Ramos, 2021. "“The Impact of Robot Adoption on Global Sourcing”," AQR Working Papers 202102, University of Barcelona, Regional Quantitative Analysis Group, revised Apr 2021.
    13. Douglas A. Irwin, 2019. "U.S. Trade Policy in Historical Perspective," NBER Working Papers 26256, National Bureau of Economic Research, Inc.
    14. Li, Minghao & Balistreri, Edward J. & Zhang, Wendong, 2020. "The U.S.–China trade war: Tariff data and general equilibrium analysis," Journal of Asian Economics, Elsevier, vol. 69(C).
    15. Simola, Heli, 2019. "Evaluating international impacts of China-specific shocks in an input-output framework," BOFIT Discussion Papers 17/2019, Bank of Finland, Institute for Economies in Transition.
    16. Laurence Wicht, 2019. "The impact of trade tensions on Switzerland: A quantitative assessment," Aussenwirtschaft, University of St. Gallen, School of Economics and Political Science, Swiss Institute for International Economics and Applied Economics Research, vol. 70(01), pages 1-34, December.
    17. Till van Treeck, 2012. "Did inequality cause the U.S. financial crisis?," IMK Working Paper 91-2012, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    18. Aleksandra Parteka & Joanna Wolszczak-Derlacz, 2020. "Wage response to global production links: evidence for workers from 28 European countries (2005–2014)," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 156(4), pages 769-801, November.
    19. Jonathan A. Parker, 2000. "Spendthrift in America? On Two Decades of Decline in the U.S. Saving Rate," NBER Chapters, in: NBER Macroeconomics Annual 1999, Volume 14, pages 317-387, National Bureau of Economic Research, Inc.
    20. Xavier Jaravel & Erick Sager, 2019. "What are the price effects of trade? Evidence from the US and implications for quantitative trade models," CEP Discussion Papers dp1642, Centre for Economic Performance, LSE.

    More about this item

    Keywords

    Trade; tariffs; trade war; Trump; China;
    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ver:wpaper:03/2019. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/isverit.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Michael Reiter (email available below). General contact details of provider: https://edirc.repec.org/data/isverit.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.