Clueless and Feckless

The U.S. trade deficit widened to a record $140.5 billion in March as exports edged up slightly while imports surged by $17.8 billion. This was much larger than the consensus expected $137.2 billion.  

Just as in January, the jump in imports was driven by businesses rushing to front-run President Trump’s new tariffs. Pharmaceuticals led the way soaring $20.9 billion in a single month. 

Because imports subtract from GDP in the calculation process this surge became a major drag on growth. Net trade alone shaved roughly five percentage points off Q1’s growth rate, pulling real GDP down at a 0.3% annualized pace. With tariff pre-buying likely peaking in March, imports should slow and become a positive for real GDP in Q2.  These numbers are all subject to revision and perhaps the surge in imports was a one-off event.  Time will tell.

Meanwhile and on a related note, we're well-aware that the president's Big Beautiful Bill will include large tax cuts. Large enough so as to add as much a $7 trillion to our burgeoning national debt over the next decade.

Ouch.

Trade deficits and budget deficits frequently move in the same direction.  Consequently, as the president disrupts and breaks the global economy with his feckless trade taxes on imports the Big Beautiful Bill may very well compound it.

As a general rule a growing budget deficit will result in our government borrowing more money.  Which can drive-up interest rates. Naturally, higher interest rates result in a stronger dollar.  A stronger dollar makes our exports more expensive to overseas consumers.  Of course, a strong dollar makes our travel abroad more affordable and other country's stuff more affordable to us; but there's no getting around the matter of that the stuff we make here and sell abroad may become costlier in the the global marketplace.

Presently our our deficit and debt are growing as fast and as high as a wartime economy.  And in case you missed it we're not at war.  And while Elon Musk's DOGE has promised us $2 trillion dollars in savings; after all of the sound and fury DOGE suggests the savings are likely around $160 billion.  Even if that figure is close to correct, it hasn't resulting in any meaningful decline in government spending.  

Double ouch.

So here we are.  We have a president somehow fixated-upon trade deficits when in-fact trade deficits in and of themselves are not necessarily a bad thing.  Who cares if we have a trade deficit with a poor island nation like Madagascar.  We purchase their vanilla beans because we have a sweet tooth and they earn dollars to make ends meet. They're unlikely to ever become large buyers of Boeing aircraft or Ford F-150 pick-up trucks. They are not picking on us; who gives a rip?

Perhaps all of our trade deficits will go away, tariff revenue will make us wealthy beyond our means, the looming threat of recession will dissipate overnight and inflation will magically evaporate.  Ask your own financial advisor what they think.

Meanwhile, I think that President Trump is clueless as to how trade deficits operate.  The application of across the board tariffs as a solution is feckless.  Someone might want to whisper in POTUS' ear that his approach might just become another unforced error.  

Recession warnings are everywhere, except in the data.  Are we headed for a recession?  Economists are looking everywhere for signs. 

Only time will tell how this all plays-out.  Speaking for myself, and in my own enlightened self-interests, I sure hope for a soft landing, no further self-inflicted economic damage and no recession.....

Port of Vancouver