The US trade deficit: Myths and realities

Maurice Obstfeld

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Sharp increases in tariffs on imports of foreign goods likely will do little to reduce the U.S. trade deficit and may not stop it from rising further, suggests a paper discussed at the Brookings Papers on Economic Activity (BPEA) conference on March 27.

“U.S. trade deficits are high and likely to rise, notwithstanding new and prospective tariffs,” writes the author, Maurice Obstfeld of the Peterson Institute for International Economics.

In his paper— “The U.S. Trade Deficit: Myths and Realities”—he examines the causes and consequences of the United States’ longstanding trade deficit. The United States has run a deficit in every quarter, except one, since the second quarter of 1976 and the annual deficit has averaged 3.1% of the gross domestic product since 2008, he notes.

“There is a lot of political rhetoric about the trade balance across the political spectrum. The message is that the trade deficit is always a bad thing and the result of either nefarious foreign machinations or the U.S. embracing globalization,” Obstfeld said in an interview with the Brookings Institution. “My message is that the reality is more nuanced.”