Ever since the Trump administration took office, we have been constantly reminded that the US needs to narrow its trade deficit. The U.S. trade deficit narrowed in 2019 for the first time in six years, as U.S. imports and exports declined amid trade tariffs and slower global growth. Tariffs shrank the U.S. deficit with China by 18% from the record high level achieved in 2019. Consequently, the net effect is that the overall deficit in goods and services shrank 1.7% last year, the first decline since 2013.

 But that tells only part of the story. The U.S. trade deficit in manufactured goods with all countries was relatively unchanged in 2019 at close to $1.048 trillion because importers turned to other nations after Trump hit China with tariffs ranging from 10 percent to 25 percent. Hence, there is the beginning of a rotation away from trade with traditional U.S. partners, such as Canada, Mexico, and China, towards other Asian nations ( Figure 1). Vietnam, Thailand, Taiwan and South Korea were the beneficiaries of declining deficit with China as Americans increased imports amount from suppliers elsewhere in Asia . The trade deficit with the EU hit a record level in 2019. This rotation amongst the U.S. trading partners works to offset the loss in Chinese trade with the net effect that the U.S. deficit in manufacturing globally remained unchanged last year. If the goal of the administration is reduce deficit in goods trade and re-patriate jobs, then the trade strategy has failed.

 Figure 1 Growth in Total Goods Traded by Country

(Click on image to enlarge)

Source: WSJ 

Moreover, should the U.S. economy return to higher growth rates, it more likely that the trade deficit will increase with those countries other than China as long as the tariffs remain in force. For domestic manufacturers, sourcing the lowest cost producer is all that matters, thus defeating the aims of the administration in narrowing the overall deficit by attacking the US-China bilateral trade head-on.