President Trump just used a White House meeting with South Korean President Moon Jae-in to complain about the US–South Korean trade deficit, a perennial Trump talking point. The problem is that what he said isn’t true.
Here’s what Trump said while sitting across the table from Moon, who was elected in May after a scandal led to the arrest of his predecessor:
The United States has trade deficits with many, many countries, and we cannot allow that to continue ... with South Korea right now, but we cannot allow that to continue. This is really a statement that I make about all trade: For many, many years the United States has suffered through massive trade deficits; that’s why we have $20 trillion in debt.
The president’s distaste for trade deficits with any country is not news, but that last sentence is striking — Trump is claiming that trade deficits are at the root of the national debt.
That is a creative explanation — and an incorrect one.
Let’s step back and clarify some terms. The US trade deficit refers to the fact that the US imports more from the world than it exports. The national debt is the result of the fact that the US government spends more revenue than it collects. While the trade deficit does have second and third-order effects on debt, there’s no direct relationship between the two.
Running a trade surplus — that is, exporting more to the rest of the world than you import from it — is no defense against incurring debt, which has to do with how much the government spends compared with how much it takes in from taxes.
“It would be easy to imagine a country with a trade surplus that ran large budget deficits — that's clearly happened in the past,” Josh Bivens, the director of research at the Economic Policy Institute, told me. “My guess that right now Germany has a small budget deficit even though they're running big trade surpluses.”
Major events in recent history have made it difficult to resolve the mismatch between how much money the government raises and how much it spends.
“A big chunk of the national debt was incurred because of the economic crisis,” Bivens explains. “As the economy just cratered in 2008, 2009, and 2010, tax collection just cratered along with it, and [then with spending on] automatic stabilizers like unemployment insurance, food stamps, and some legislation like the Recovery Act, there was a large increase in the national debt over those years.”
The accumulation of debt isn’t just something that happens to the economy — it’s also the product of policy decisions. Prior to the Great Recession, US debt skyrocketed because President George W. Bush implemented huge tax cuts for the rich while spending trillions of dollars on the Iraq and Afghanistan wars.
The simplest way to reduce the national debt would be to close tax loopholes on income for corporations and the super wealthy. But right now Trump and his party are looking to do just the opposite — they want more cuts for the rich through both health care legislation and comprehensive tax reform.
You can watch Trump make his creative claim in the video below:
Pres. Trump: We cannot allow trade deficits with S. Korea to continue https://t.co/oUzoQRV0B9— MSNBC (@MSNBC) June 30, 2017