All of this is a sideshow. Tariffs cannot have a major effect on the size of the U.S. trade deficit, which rose in February for the sixth straight month, to a near 9.5-year high. So long as we suck in imports with a huge budget deficit and low personal savings, we will run trade deficits. And economists agree that bilateral trade deficits are meaningless—even countries with overall trade surpluses run deficits with some of their trading partners.
The important, enduring factor that has surfaced in recent days is a change in the politics of trade. Even Trump’s critics now agree that a major change in our trading relations with China is necessary. Hopes that China would become a rules-abiding member of the trading system have been dashed. Jamie Dimon, CEO of JPMorgan Chase and a free trader to his core, says that China, now the second largest economy in the world, should no longer be preferentially treated by the World Trade Organization as if it is the developing country it was when welcomed to membership—largely at the urging of the United States.
The real battle will come when America decides not to allow China to dominate the industries of the future by flaunting the rules that have governed the international trading system since the end of World War II.