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US trade deficits rose despite Trump's first-term tariffs

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Companies shifted US imports from China to Mexico, Vietnam

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Trump shattered decades of political support for free

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US-China trade war cost American soybean growers export

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China remains dominant supplier of US consumer technology

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By David Lawder

WASHINGTON, Jan 16 (Reuters) -

Donald Trump came to Washington eight years ago vowing to

rewrite U.S. trade relationships, shrink a massive goods trade

deficit and rebuild America's industrial base with new tariffs.

The president-elect is about to embark on an even more

aggressive effort in his second term, pledging to impose 10%

duties on all U.S. imports and 60% on goods from China.

Just how that will play out is unclear, but data from his

first run at upending the trade landscape show it did shift U.S.

imports away from China to other countries, especially Mexico

and Vietnam. Still, the U.S. trade deficit continued to grow,

topping $1 trillion over the last four years, and factory

employment has flatlined amid an overall jobs boom since the

COVID-19 pandemic.

STEEL SLIDE

Steel producers in the U.S. benefited the most from Trump's

tariffs, winning a 25% global duty while aluminum producers saw

a 10% duty. Those were somewhat diminished after Trump's first

administration negotiated quota deals with Mexico and Canada and

the Biden administration followed up with quota deals for the

European Union, Britain and Japan.

Meanwhile, China's dominance of these sectors globally has

kept prices low, contributing to lower capacity use rates.

Some plants initially revived by the duties, including a U.S.

Steel mill in Granite City, Illinois, visited by Trump in 2018

to herald the industry's resurgence, have shut down blast

furnaces. A Missouri aluminum smelter revived by the tariffs

also was idled last year by Magnitude 7 Metals.

Trump's biggest first-term trade impact was to shatter decades

of political consensus favoring ever-lower trade barriers that

had allowed China to become the world's largest goods producer.

Indeed, when Trump left office in 2021, the theme was taken up

and amplified by President Joe Biden.

"Waking the world up to the economic threat from China was

one of the top accomplishments of Trump's first-term trade

agenda, as was the renegotiation of some of our major trading

relationships," including a North American free trade deal, said

Kelly Ann Shaw, a trade adviser during Trump's first term.

"We're now having a healthy debate in America about what

industries we want to keep, which supply chains are critical and

where we should focus our trading relationships," said Shaw, a

trade lawyer at law firm Hogan Lovells in Washington.

Trump's tariffs of 25% on $370 billion of Chinese imports

helped reduce the U.S. trade deficit with China from $418

billion in 2018 to $279 billion in 2023. But as companies

shifted production elsewhere, new winners emerged: Mexico and

Vietnam. The growth of their U.S. trade surpluses more than made

up for China's decline.

RETALIATION, PRICING COSTS

This shift came at considerable cost. China hit back with

retaliatory tariffs of 25% on U.S. soybean exports and largely

shifted aircraft purchases away from Boeing ( BA ) to rival

Airbus for years.

U.S. whiskey distillers were hit by EU retaliation over metals

tariffs, but exports rebounded when those tariffs came off, said

Chris Swonger, CEO of the Distilled Spirits Council of the

United States.

In the 2020 "Phase 1" trade deal that ended the U.S.-China trade

war, Beijing pledged to boost its purchases of U.S. goods and

services by $200 billion over two years, but failed to do so as

COVID-19 hit.

China's promised increases in U.S. soybean volumes instead

went to Brazil and Argentina. Scott Gerlt, the chief economist

for the American Soybean Association, said that's a permanent

shift.

"We never recovered the volume of China soybean exports

since that trade war," Gerlt said. "A lot of land came into

production in Brazil. Brazil surpassed us in exports to

China."

The shift could help China weather a new trade war, but the crop

remains the top U.S. export to China.

Commercial aircraft once held the top spot but have been slow to

recover, while motor vehicle shipments to China also declined as

China's electric vehicle industry has surged. Displacing them is

crude oil, going from zero a decade ago to $13 billion in

2023.

The U.S. remains highly dependent on China for technology

imports, including smartphones, laptop computers and video game

consoles. Many of these products were spared Trump's first-term

tariffs, but duties of 60% or more would raise costs

considerably.

China's vast scale and efficiencies in sectors such as

electronics and toys cannot be easily replicated elsewhere,

creating difficult choices for companies facing steep tariffs,

said Mary Lovely, a trade economist who is a senior fellow at

the Peterson Institute for International Economics.

"These are enormous enterprises. How do you recreate that in

another country that's a tenth of the size of China? You don't,"

Lovely added.

Trump's first-term tariffs did not cause a spike in consumer

price inflation, but they were limited in scope and caused only

one-time price increases, said Doug Irwin, an economics

professor at Dartmouth College who specializes in trade.

"Tariffs are just a tax, and so they lead to a one-off level

increase in the price of those goods," Irwin said. "They're not

this continuous rise in the general price level, which is

inflation."

The price impact from further tariffs also depends on

factors such as U.S. fiscal and monetary policy that may lift

the dollar's value, trade retaliation that could lower other

domestic goods prices, and whether or not importers or exporting

firms absorb some of the tariff costs.

TARIFF REVENUE

Trump also has pledged to pay down U.S. debt with tariff

revenues. On Tuesday, he promised to create an "External Revenue

Service" to collect tariffs, duties and all revenue from foreign

sources. Collections from his punitive duties since 2018 suggest

a vast increase would be needed to make a dent in U.S. deficits

now approaching $2 trillion a year before an expected extension

of expiring tax cuts, estimated to add more than $4 trillion in

new debt over a decade.

Total collections from the China, steel, aluminum and solar

panel tariffs have totaled $257 billion over seven years, a

rounding error amid cumulative deficits of $12.57 trillion

during that time.

The conservative-leaning Tax Foundation estimates that a 10%

universal Trump tariff would raise about $1.7 trillion over 10

years, including accounting for a negative impact on economic

growth.