James Surowiecki
Appearances
Planet Money
Do trade deficits matter?
And over the past half century, the prices of basically all those assets have gone up. And that has contributed to their wealth and to ours.
Planet Money
Do trade deficits matter?
Ken actually has a book coming out called Our Dollar, Your Problem. When people think about trade, often they're just thinking about the goods and services countries are selling to each other. But in that mirror image, on the flip side of this, there are dollars. The more we import from other countries, the more U.S. dollars end up in foreign hands.
Planet Money
Do trade deficits matter?
And if people from other countries are not spending those dollars buying our goods or services, then they are investing it in our assets because it all has to balance out.
Planet Money
Do trade deficits matter?
And you can actually look up where those U.S. dollars are going. The Bureau of Economic Analysis publishes these charts. As of 2024, foreigners owned about $62 trillion of U.S. assets. They own almost a quarter of our government debt and about 20 percent of our stock market.
Planet Money
Do trade deficits matter?
But from the perspective of the health of our economy, it kind of depends on where they invest the money and how we end up spending that money. Take government debt, for instance. Other countries are eager to buy our government debt to lend to us at low rates.
Planet Money
Do trade deficits matter?
The same goes for companies. Are those companies taking all that money they're getting from investors and spending it on productive things like building factories or funding high tech research and development?
Planet Money
Do trade deficits matter?
And Ken says, look at our GDP. By that measure, we've been growing faster than basically any other advanced economy.
Planet Money
Do trade deficits matter?
But the cost of those barriers? No reasonable calculation can get you to an additional 50%.
Planet Money
Do trade deficits matter?
It hasn't worked badly for the economy overall. But there have been tradeoffs. Like, all this money flowing in has been great for the federal government because all that demand for our debt means we get charged lower interest rates. It's been great for companies and people who own stocks and bonds.
Planet Money
Do trade deficits matter?
So listener Don asked us, is a trade deficit bad or good? And the answer is, it really depends on what is underlying the trade deficit.
Planet Money
Do trade deficits matter?
For us, part of why we have a trade deficit is as a nation, we buy a lot of stuff. But also, like Ken says, because countries out there are really eager to sell us stuff for lots of reasons, like to build up their own manufacturing industries, but also because they want our dollars, want to invest in our economy.
Planet Money
Do trade deficits matter?
With other economists, he wrote papers about this alarming sudden growth in the trade deficit.
Planet Money
Do trade deficits matter?
All that foreign investment was showing up in the trade deficit. People in other countries, instead of using their dollars to buy our airplanes or our oil, they were using it to invest in our housing market and financial markets. And those markets kept going up, up, up. Until they crashed in the financial crisis of 2008.
Planet Money
Do trade deficits matter?
The trade deficit had been a sign, one of many you could argue, that something was off, overheating.
Planet Money
Do trade deficits matter?
As with your body, a sudden change might mean something's wrong. But if it's just daily aches and pains, it's probably fine.
Planet Money
Do trade deficits matter?
Right. The economy was getting swole. This episode of Planet Money was produced by Emma Peasley and edited by Marianne McKeown and Kenny Malone. It was fact-checked by Sarah McClure and engineered by Kweisi Lee. Alex Goldmark is our executive producer. I'm Mary Childs.
Planet Money
Do trade deficits matter?
And James starts plugging in numbers to do with our imports and exports. He looks at how much does the U.S. import from this country versus how much do we export to it? Our trade deficit.
Planet Money
Do trade deficits matter?
Yes, so stuff we make and buy and sell, but also invisible stuff. Services like banking and management consulting and Netflix. And James randomly tries excluding services from his calculations.
Planet Money
Do trade deficits matter?
He arrived at the magic number that the Trump administration had assigned to Indonesia.
Planet Money
Do trade deficits matter?
And later that night, the Trump administration released their formula that basically confirmed that they had calculated these tariffs with the goal of closing our trade deficits with every single country. James's suspicion seemed to be right. These weren't just matching any trade barriers other countries had on us. They weren't just reciprocal. They were about trade deficits.
Planet Money
Do trade deficits matter?
I'm Mary Childs and we are here to answer your biggest questions. Today on the show, trade deficits.
Planet Money
Do trade deficits matter?
This was the thing that everyone wanted to know about. So what are they? Do trade deficits matter? And why would a person, a president, want to close them?
Planet Money
Do trade deficits matter?
To be fair, Hawaii does make coffee, but it's not even close to enough. So a new tariff on Indonesia means James's coffee is going to cost more. And James was looking at this new tariff. It was 32 percent and wondering how did they come up with that number? So he sets out to see if he can figure it out.
Planet Money
Do trade deficits matter?
And then literally after we wrote that last paragraph that Jeff just read, Trump announced a whole new pause on some of the biggest tariffs for 90 days. Except for China, who will have an even higher tariff than the one we just mentioned.
Planet Money
Do trade deficits matter?
So the bottom line is after the first announcement of tariffs, The stock market absolutely tanked. It's feeling better now. Everyone from bankers and CEOs of retail companies and prime ministers to my personal group chats, people everywhere were freaking out about these tariffs.
Planet Money
Do trade deficits matter?
OK, so that's actually a lot of questions. We will take them in sort of that order. First off, on a very basic level, what even is a trade deficit?
Planet Money
Do trade deficits matter?
But Foreignlandia, you should know, is really good at making mittens. They have vast natural mitten resources, and we don't have any of that in the U.S.
Planet Money
Do trade deficits matter?
James Surowiecki is an economics writer for The Atlantic and a lover of one particular imported good.
Planet Money
Do trade deficits matter?
And in this bilateral world, Foreignlandia is going to want some of our stuff too. Let's say, I don't know, they love American-made nerd clusters, the very popular candy made right here in Chicago. Now, if the Foreignlandians spend as much money buying stuff from us as we did buying from them, then we have balanced trade.
Planet Money
Do trade deficits matter?
But if they only want $500,000 worth of nerd clusters, we've got ourselves a trade deficit.
Planet Money
Do trade deficits matter?
In the non-imaginary world, in the real world, we have trade relationships with just about every country and territory on Earth. And in general, we tend to run trade deficits with those countries. We are a nation of consumers. And the global economy has been shaped around that. And Don wanted to know, OK, great. What does this mean for us, for our country?
Planet Money
Do trade deficits matter?
Now, when we're talking about our trade deficit, there are kind of two types of trade balances to think about. There's our big overall global trade deficit. And then there are a lot of smaller trade relationships with each individual country that comprise the overall big one. Those are our bilateral trade relationships.
Planet Money
Do trade deficits matter?
Okay, so Ken, if I'm like a big fan of Japanese snacks, which is true, and I want to go buy a matcha Kit Kat bar, which is now much easier than it used to be. So I like go buy it and my dollar goes into space and to Japan, right?
Planet Money
Do trade deficits matter?
They said the Trump administration had said these new tariffs were reciprocal. They were supposed to be the combination of the tariffs a country charges us, plus whatever other trade barriers they have on, like regulations or fees. And the Trump administration said Indonesia was effectively charging us 64 percent.
Planet Money
Do trade deficits matter?
And Kent says normally it's OK if, say, we're buying more stuff from Japan than we're selling to them. So it is fine for me to just buy a matcha KitKat.
Planet Money
Do trade deficits matter?
Like in the U.S., we just can't grow a lot of coffee or bananas because of climate. But we do actually export a lot. And what we are comparatively better at is invisible stuff, less tangible things. We actually have a trade surplus in services. We export cloud storage, tickets to a show in Vegas, an HBO subscription, a JP Morgan bank account, or a seat at Ken's class at Harvard.
Planet Money
Do trade deficits matter?
Right. Trade. Ken says we do what we're good at doing, which in my case is, you know, comparatively making podcasts. And then we purchase the yield of what someone else is better at doing, which is making matcha Kit Kat bars.
Planet Money
Do trade deficits matter?
We can buy crates full of matcha KitKat bars from Japan while Japan buys boatloads of vanilla from Madagascar and Madagascar buys vegetable oil from us. So each individual trade relationship can look whack in scale or in kind.
Planet Money
Do trade deficits matter?
So when President Trump last week announced these new tariffs that aimed to close each bilateral trade deficit, Ken says he thought that was nuts.
Planet Money
Do trade deficits matter?
Ken used to be the chief economist at the IMF, trying to lend to developing economies to help them grow. So balancing trade with all of these tiny countries where people don't have money to buy lots of stuff from us in the first place seemed also nuts.
Planet Money
Do trade deficits matter?
And is that bad? That's after the break. America is running a global trade deficit since the late 1970s. We have been importing more goods and services from everywhere than we are exporting to everywhere.
Planet Money
Do trade deficits matter?
Or, as our friend, listener Don Randall put it, will there be bad consequences for not balancing our trade? Well done. There is one thing trade deficits do that we haven't talked about yet. It has to do with where the money goes. When we run trade deficits, when we buy stuff from other countries, they end up with our dollars. So our trade deficit spreads dollars all over the world.
Planet Money
Do trade deficits matter?
They could stuff them under their mattresses or they can spend them in a place that takes U.S. dollars. So the U.S. And if they're not using those dollars to buy our stuff, then the only thing left to do is invest those dollars in the United States.
Planet Money
Do trade deficits matter?
Because if you have U.S. dollars, there are still really only three things you can do with them. You can stuff them under your mattress. You can buy stuff or invest in stuff in U.S. dollars. The only difference is here in the real world, you can trade them for another currency. But then someone else has the dollars and they still have to stuff them, spend them or invest them.
Pod Save America
Trump's "Liberation Day" Crashes the Stock Market
So what he announced was that the United States will be imposing tariffs on, I would say, almost every country in the world. It's a little unclear. There's some countries that weren't on the list. And we know that Canada and Mexico were exempted because they already have these other tariffs that they put on. So What Trump said was that these were what he called reciprocal tariffs.
Pod Save America
Trump's "Liberation Day" Crashes the Stock Market
In other words, that he was imposing tariffs that were pegged to the tariff rates that these countries impose on us. And as he described it, basically, they were half of the tariff rates that these countries are imposing on us. So if you saw it, he had this kind of prop because, of course, Trump is doing something visual or whatever, TV-ish. He had this big prop with the country's names on them.
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Trump's "Liberation Day" Crashes the Stock Market
And it had one column that was the supposed tariff rates that these countries are charging and then the tariff rate that we will be imposing in response, basically. So that was essentially the message he was sending. But as it turns out, the tariff rates that these countries are supposedly charging the way the Trump administration calculated those was kind of odd.
Pod Save America
Trump's "Liberation Day" Crashes the Stock Market
Yeah. So let's just start from the beginning. So when Trump introduced these, you know, he went through and he went through different countries. He would talk about China and, you know, what good negotiators Vietnam is and everything. But the way he described it was the way it read on the chart, which it said tariff rate. And then underneath it, it said
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Trump's "Liberation Day" Crashes the Stock Market
tariffs, so the actual tariffs that countries impose on U.S. exports, plus what they're calling non-tariff trade barriers. So that would be things like, I don't know, there might be special regulations that make it hard for American companies to sell in this country, or the Trump administration likes to call value-added taxes a non-tariff trade barrier.
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Trump's "Liberation Day" Crashes the Stock Market
I think it's nonsense, but they tend to do it. So when it first came out, I think we assumed that that number was somehow assembled out of those things. Even though the numbers, when you looked at them, didn't really make sense. They were like way too high for some countries. They were too low for others. It was totally unclear where they were coming from.
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Trump's "Liberation Day" Crashes the Stock Market
But Trump said, this is what we are being charged by other countries. But what the reality is, is exactly what you said. What they did was they just took our deficit with these countries. And one thing that's important is just the deficit in goods. So services were not included. This is just like manufactured goods or agricultural goods and the like, right? So they took our trade deficit.
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Trump's "Liberation Day" Crashes the Stock Market
That's just the amount we sell to a country minus how much we buy from it. And then they divided it by the total number of imports we get from that country. And so, I don't know, like Indonesia, our trade deficit with Indonesia is like 18 billion and total imports are 28. You divide 18 is 64 percent of 28. And so Trump said on the chart, it says Indonesia's tariff rate is 64 percent.
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Trump's "Liberation Day" Crashes the Stock Market
Needless to say, that's not the actual tariff rate Indonesia is charging. It has nothing to do with the actual tariff rate Indonesia is charging. The real point, I think, the reason this is important is I think what it shows is that for Trump, it's something we knew, but it's worth being reminded of. For Trump, basically any trade deficit is bad.
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Trump's "Liberation Day" Crashes the Stock Market
Any trade deficit is evidence that we're being ripped off. And so they basically came up with this method that made... countries' tariff rates look a lot higher in a lot of cases than they actually are.
Pod Save America
Trump's "Liberation Day" Crashes the Stock Market
Well, trade deficit is pretty simple. I mean, it involves if you're running a trade deficit, you are buying more in dollar terms. You're buying more from a country than you are selling to it. And again, again, it's not countries that are selling to each other. It's companies within those countries. But you know what I mean.
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Trump's "Liberation Day" Crashes the Stock Market
One thing that is important to note about the trade deficits that Trump used to calculate these, quote unquote, imaginary tariff rates, is that he only looked at goods. So the United States runs a huge surplus in services with the rest of the world and with a lot of countries. And he just excluded all those because – I don't know, I guess because he's only interested in manufacturing or whatever.
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Trump's "Liberation Day" Crashes the Stock Market
So a trade deficit is you buy more than you sell. So sometimes that is because countries are making it hard for you to sell in their country. So they either have high tariffs, which raise your prices, or maybe they have these sort of non-tariff trade barriers. In the old days, there would actually be literal quotas, right?
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Trump's "Liberation Day" Crashes the Stock Market
You could only sell so much, or maybe you couldn't sell cars at all or whatever it is. There are many, many fewer of those now. They tend to be hidden a lot better. So... For Trump, as I said, if there's a trade deficit, it's a sign that there are these trade barriers that are keeping us out. But the reality is that sometimes it reflects what used to be called comparative advantage.
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Trump's "Liberation Day" Crashes the Stock Market
Countries just specialize in something and are having to get very good at it. And we want to buy stuff from them. And we want to buy more of that from them than they want to buy of whatever it is we're selling. Sometimes that's just going to happen. Sometimes it's a product of... Just climate, right? So we buy coffee from Indonesia. We buy bananas from Honduras or whatever.
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Trump's "Liberation Day" Crashes the Stock Market
And those are not necessarily rich countries. They aren't necessarily countries that have a huge amount of appetite for American goods. Maybe they do, maybe they don't. But it's not surprising that in some situations like that, you're going to have a trade deficit. Or like an example a lot of people have cited in the last couple of days is this little African country called Lesotho. So Lesotho...
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Trump's "Liberation Day" Crashes the Stock Market
had the highest tariff rate listed on Trump's chart. It was 99%, which was the maximum you could get. And the reason for that was that we imported like 240 million from them and sold like 2.8 million. But the reason is that Lesotho has tariffs, but that's not why. The reason is that Lesotho sells diamonds and we buy diamonds from them. And they're a poor country that
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Trump's "Liberation Day" Crashes the Stock Market
a relatively poor country that American companies are not necessarily going to spend a lot of time investing, trying to get into that market. And so the idea that the answer to all these trade deficits is just like get them to lower their trade barriers and everything will be solved, which Trump's tech commerce secretary, Howard Lutton, it keeps saying over and over again.
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Trump's "Liberation Day" Crashes the Stock Market
I think it's just like incredibly simplistic, but it's simplistic in a way that totally fits the way Trump sees trade. So it kind of makes sense.
Pod Save America
Trump's "Liberation Day" Crashes the Stock Market
People suggested that, yeah, because if you ask a variety of AI things a question about, like, what's an easy way to devise a tariff policy that will – theoretically balanced trade. And I think that's what AI answers, basically. So it may be that there's some, it may be that. It's also true, though, that this is like an incredibly simple formula. I mean, it's just not a complicated formula.
Pod Save America
Trump's "Liberation Day" Crashes the Stock Market
And it really embodies this idea that, you know, not just that trade deficits are bad, but that if you have a trade deficit, it's the result of some nefarious actions on the part of the countries you're trading with, basically.
Pod Save America
Trump's "Liberation Day" Crashes the Stock Market
I mean, I wouldn't be surprised if, you know, tariffs like this do have some impact on overall manufacturing. I mean, my general take on the manufacturing question is that factories today are just not that labor intensive and because factories are much more automated and that the desire to somehow or the imagination that we're going to be able to bring back, you know,
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Trump's "Liberation Day" Crashes the Stock Market
Five, 10 percent of our workforce to factories, I think, is really ill conceived. And the other truth is a lot of factory jobs are just not that well paid today. They're not exceptionally well paid. And I don't think they would become so. I think the bigger question about is who's going to pay for it. And the answer there is, I think, mostly working in middle class people.
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Trump's "Liberation Day" Crashes the Stock Market
um, and also American companies that, uh, import a lot of goods, either resell them or actually to use them to in turn, make whatever it is they're making.
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Trump's "Liberation Day" Crashes the Stock Market
I mean, we do have global supply chains and, and so, uh, you know, just today, I guess Stellantis announced they were laying off like 900 workers, um, uh, at an auto plant because of some of these tariff issues, I think with Canada or Mexico, I can't remember which. And, um, and, And I think that, you know, the foreign producers will probably eat some of the tariff costs.
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Trump's "Liberation Day" Crashes the Stock Market
In other words, they'll reduce their profit margins some. American importers, who are the ones that actually pay the tariffs literally, they will probably eat some of the costs. But some of it is just going to get passed on. And that's especially true for, you know, one of the things that's amazing about this is he's, I mean, this is so obvious, but it's worth stating again, like,
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Trump's "Liberation Day" Crashes the Stock Market
He's imposing tariffs on basically everything we import. And that includes things that we have no hope of making. He's importing tariffs on coffee. You know, we grow a minuscule amount of coffee in Hawaii. It's pretty much the only place we can do it. So there's all this agricultural stuff. And then, you know, if you think about manufacturing, it takes a long time to open factories.
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Trump's "Liberation Day" Crashes the Stock Market
Or retool them, yeah. And there is a reality that companies that have been doing this for a long time have expertise. And the idea that we're just going to be able to replace them, I think, is really foolish.
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Trump's "Liberation Day" Crashes the Stock Market
And then the last thing I'll say, sorry, I'm going on here, but is the other big problem with the manufacturing thing is Trump is injecting so much uncertainty into the economy that I just think it's very hard for any... CEO to convince himself, okay, you know what the thing to do is we're going to invest billions in the US and we're sure that everything is going to turn out fine.
Pod Save America
Trump's "Liberation Day" Crashes the Stock Market
A little bit, but I do think that I cut them a little bit of slack because the obvious problem with Trump is you literally never really know what he's going to do. Like he could have woken up yesterday and been like, ah, you know what? Ah, forget it. We'll just make it 10% flat.
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Trump's "Liberation Day" Crashes the Stock Market
Or, you know, 10% plus 20% for some of our bigger ones, you know, which is, or he could have, they could have actually really done reciprocal tariffs. Like they could have actually, which is what he had originally suggested they were going to do back in February when he talked about this back in February. So I cut them a little slack on that.
Pod Save America
Trump's "Liberation Day" Crashes the Stock Market
I do think, this is something I've been talking about for a long time. I do think people consistently underestimate how much Trump just loves tariffs. I agree. He really loves them. And he really does think and always has. I mean, you know, Trump doesn't care from my perspective. I don't think Trump cares about almost anything, certainly in politics. Like I think almost no issues matter to him.
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Trump's "Liberation Day" Crashes the Stock Market
But trade is one that has always mattered to him since since the 80s. I mean, he's really always been obsessed with it and has always had the same position. But the second thing is that the goal is to get rid of every trade deficit with every country. It's not just even to like balance the trade deficit globally, which would be hard enough.
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Trump's "Liberation Day" Crashes the Stock Market
He ideally, I think, wants to get rid of every single trade deficit with every, even like little tiny countries he wants us to not have a trade deficit with. And I think Wall Street just thought he would be more rational and less in love with tariffs than he actually is.
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Trump's "Liberation Day" Crashes the Stock Market
Yes, no, no. I mean, I think that is it. I mean, I think his entire... view of the world is zero sum. That's his entire view of the world. And there's either a winner or a loser. And if you're buying, especially if you're buying without driving a hard bargain to begin with and trying to get the other person to drop down, then you're losing. And it's worse than losing. You're getting ripped off.
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Trump's "Liberation Day" Crashes the Stock Market
And he hates that more than anything.
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Trump's "Liberation Day" Crashes the Stock Market
Appreciate it. Thanks for having me on.