As the trade and tariff chaos appears to be winding its way to at least an initial resolution, I will repeat some earlier observations. Trump has largely backed off earlier claims about reducing the trade deficit as a goal. I will still predict that there will be little change in the US trade deficit when all is said and done. Unfortunately the process followed and things said about foreign countries probably will reduce enthusiasm for US goods and services overseas, which hurts businesses in the US. There may be some additional tariff revenue, but it won’t be enough to make a dent in the total federal spending deficit. The higher tariffs will likely end up with some impact on prices, but not clear that it will be significant in the calculation of overall inflation. Also unlikely that substantial new manufacturing jobs will be created here. Lots of exaggerated claims about new foreign investment in the US, most of which was already planned.
My biggest concern is that it remains uncertain that enough has been done to protect the US from Chinese control of critical industries, like rare earth minerals and pharmaceuticals. The US should do whatever it takes to build those up either here or in friendly countries. Our goal should be zero dependency on China for industries necessary for national security.
One good result from the trade chaos may be that many of our allies, particularly in Europe, have a greatly heightened suspicion of China and China’s aims to create dependency. If every democracy takes action against China’s dumping and we collectively build up our own capacity and have freer trade among these countries, then China will be seriously constrained economically and militarily.
Another good outcome is that it appears the trade negotiations will be done by this fall, leaving plenty of time for other issues to dominate the 2026 mid-term election. And the economy should be in good shape as a result of what appear to be pretty reasonable deals.
Despite Trump’s exaggerations, it would seem that between DOGE and tariffs there will be some “dent” in the $2T/yr deficit. Like maybe $200-300B with DOGE and a similar amount of extra revenue from tariffs. Cuts to Medicaid by eliminating payments to illegals, and eliminating duplicate benefits by individuals in multiple states might net another $200B. Of course, any cuts are going to be challenged in the courts. The “promises” from the UE to purchase LNG and “invest” in US manufacturing will take years to realize, if ever. I agree, it’s hard to imagine any real increase in US manufacturing related to exports outside of agriculture. And, China remains the main problem for de-coupling from essential items, like pharmaceuticals and rare earths. What are your thoughts on AI? All those white collar jobs requiring a college education….are they going to disappear into some data center black hole? Finally, this embrace of AI and crypto by Trump…it’s got me worried.
“it appears the trade negotiations will be done by this fall, leaving plenty of time for other issues to dominate the 2026 mid-term election.”
Indeed. Since April, I have thought that was Trump’s reason for all the chaos. He wanted to force the issue and get it resolved ASAP and long before the election.
$300 billion in additional revenue will make a significant dent in the budget deficit. Not nearly enough by itself, but it will surely help.
I doubt there will be any large immediate change in trade deficits. I expect that they will start to decline over time. We shall see.