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125 Is the rise in the US deficit a damage to the US economy?

The U.S. Treasury budget deficit jumped during the first nine months of the 2018 fiscal year.  The increase was 16% from $523 billion fiscal 2017 to $607 in July 2018.(1) Is a $84 billion rise in deficit an indication that tariffs are not beneficial for the US economy?

Tariffs are a tax, collected by US Treasury. When an export is shipped to the US, customs adds to it a tax labelled as a "tariff". For instance, the largest exporter to the US - China - has just been taxed 25% for $34 billion worth of Chinese goods.(2)  Potentially this tax could generate $8.5 billions of additional revenue for the Treasury, though that actual amount of cash received would be smaller after administrative costs are deducted.

The US now threatens an additional tariff on $200 billion of Chinese imports, with a gross revenue potential of $50 billion. Even in such case the  revenues from tariffs would not make a significant difference. The current trade balance for the US is close to a negative $800 billion when tariff income could not reverse the current losses from the current account balance.

Trade wars would be theoretically advantageous to the US treasury except that equivalent retaliatory measures are then adopted by China. Costs of imports from the US to Chinese consumers go up.  They end up as rising consumer expenditures.

Of course, the outcome of a trade war is not simple.  There is a difference in the balance of trade between the US and China(3):

The highly indebted US consumer could avoid importing higher priced goods from China. The trade balance of the US is also negative. With government, plus corporate plus private debt now exceeding a multiple of the GDP, the likely outcome will be a reduction of income from China tariffs. Most of the type of goods imported from China are consumer disposables, which are not essential. The difference between the steadily rising US deficit of well over $100 billion and the relatively smaller tariff revenues will not change the deficit of the US government.

Imports of US goods to China shows different economics. The agricultural products can be partially replaced from other countries. Higher prices are affordable because China has a positive trade balance and purchases are done through centralized organizations that can change purchasing patterns faster than the highly decentralized US consumers can do.

Rising US government revenues through tariffs do not appear to be a viable business proposition.  The terms of trade, despite rising tariffs, favor China and not the US.  The ultimate measure of trade wars is the balance of trade. At this point the China balance of trade is positive and the US balance is deeply negative. It appears that there is no way how tariffs could reverse US negative conditions in international trade. 
Monitoring these comparable US and China trade ratios will be continued with a hope that favorable trends may suddenly emerge.


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