1/3 Tariffs are at best a highly indirect way of lowering the trade deficit. Here is how I explain the trade deficit to my Econ 101 students. Start with a simple accounting truism: Investment + Gov purchases + eXports = Saving + net Taxes + iMports.
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2/3 In the US, T is very low relative to G (big budget deficit) and S is very low relative to I (very low savings rate). Simple arithmetic tells you that M has to be large relative to X.
3/3 One way to lower the trade deficit (M-X) would be to save more. (Americans are not savers but Chinese are.) Another would be to tax more like the Germans. We could also invest less (bad in the long run) or cut G (bad unless we cut stuff that is bad, not stuff that is good). Take your choice.
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