Jobs added while trade deficit grew in 2018
Those worried about America’s trade deficit may be puzzled by two recent trends. Since the Great Recession, jobs continue to grow while the deficit widens.
According to the January 2019 jobs report, 304,000 positions were added to the US economy, meaning that the US has now enjoyed 100 months of uninterrupted job growth.
At the same time, however, there has been very little correction to the trade deficit. A small narrowing of 7 percent last November had some claiming that President Trump’s tariffs were starting to work. Yet, that small drop was consistent with normal month-on-month changes over the last 5 years.
And, regardless of that November drop, the fact remains: the annual trade deficit was already at 10-year high before the holiday period.
This is a puzzle for critics of the deficit. The common argument is that consuming foreign goods crowds out domestic employment. Reducing the trade deficit, then, is a way to protect—and create—jobs.
That may be true for specific industries who benefit from trade protection. US Steel’s recent announcement reopen operations outside of Birmingham, AL was a boon for supporters of Trump’s tariffs.
However, the last significant narrowing of the deficit was for all the wrong reasons. During the Great Recession, there was a sharp decline in imports, but only because falling household incomes resulted in less consumption.
At least for now, the rise in jobs lends greater support to the argument that much of America’s economy depends crucially on imports from abroad. Just ask GM, which announced up to 14,000 layoffs and $1 billion in losses as a result of steel tariffs.