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 Richmans' Trade and Taxes Blog

U.S. Trade Deficit grows to $571 billion, driving GDP growth down to 1.8% in 1st Quarter
Howard Richman, 5/27/2011

President Obama is testing out the theory that it is possible to pump up the U.S. economic tire without patching the trade deficit leak. So far, he has only succeeded in pumping up the trade deficit.

As shown in the chart above, the U.S. trade balance fell to an annual rate of a negative $571 billion in the first quarter of 2011, the worst level since President Obama took office. This worsening of the trade deficit subtracted from demand for U.S. products, driving down real U.S. GDP growth from 3.1% in the fourth quarter of 2010 to an anemic 1.8% in the first quarter of 2011, according to the BEA's second estimate of 1st Quarter U.S. GDP released on May 26.

President GW Bush also tried to pump up the U.S. economic tire without patching the trade deficit leak, but only succeeded in pumping up a house price bubble. After that bubble popped in 2006, it became clear that his economic growth was illusory. Now the House Republicans are trying to pass the Ryan budget which would attempt to pump up the economic tire by cutting taxes, again without patching the trade deficit leak.

The economic leaders of both parties are stuck on trying variations of the same experiment again and again, and failing again and again. When will they finally patch the leak by enacting a scaled tariff?