U.S. Trade Deficit Shrinks Amid Trump Trade War

on Feb5
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But economists have argued that the figure is a poor metric for measuring the health of the economy or America’s trading relationships. While a falling trade deficit can be a sign of a growing economy, the measure can fall for a variety of other reasons, many of them unrelated to trade and not all of them positive.

Speaking at an event at George Washington University on Tuesday, Janet L. Yellen, the former Federal Reserve chair, said that the bilateral trade deficit between the United States and China was “not the proper focus.”

Ms. Yellen said that Mr. Trump and some of his advisers see the trade gap “as a symptom of relationships being unfair.” But for many economists, a country’s overall trade deficit with the rest of the world just means that the country is spending more than the output it can produce itself, she said.

“Most economists think that a country’s savings and investment are decisions that aren’t affected by trade policy,” she said.

Brad Setser, a senior fellow at the Council on Foreign Relations, said that a falling trade deficit can sometimes be a sign of the kind of manufacturing boom that the Trump administration has been trying to engineer. In that case, American factory production would be rising, displacing foreign products from the American market and causing imports to fall.

But that is not the situation the United States finds itself in, he said. Instead, factory activity has been weak, and both American imports and exports have contracted, he said.

In addition, tariffs and trade uncertainty appear to have cut into business investment, slowing economic growth.

“Tariffs to date have clearly had a significant impact on imports from China,” Mr. Setser said. “They equally clearly have not led to a stronger U.S. manufacturing sector.”

Jeanna Smialek contributed reporting from Washington.

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