US trade deficit and Trump uncertainty
trade-wars
Tariffs can’t fix the US trade deficit because they ignore the saving-investment identity behind it — and early 2025 data already shows the policy backfiring.
The trade balance is, by accounting identity, saving minus investment — so tariffs that don’t change US saving or investment behaviour can’t durably close the deficit; at best they trigger currency appreciation that offsets them. Early-2025 data bears this out in a counterintuitive way: rather than cutting imports, the threat of tariffs pushed Americans to stockpile goods, and fear drove a $54 billion surge in gold imports, disproportionately benefiting Switzerland, Ireland, and Taiwan. Even a successful reshoring push would likely widen the deficit further in the short run, as firms import capital equipment to build new domestic capacity.
Originally published on Substack, April 7, 2025.