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Trade War… Not!

Recent trade data shows the U.S. is not entering into a global trade war.

Economist, Author, and Five Star Wealth Manager

Ivan Illán has excelled in both institutional asset management and financial advisory for more than 20 years. Ivan’s work has been featured in numerous articles including, The Washington Post and The Wall Street Journal. He’s a Forbes Contributor and Finance Council Member. Ivan is also ranked as a Financial Times Top Financial Adviser. He holds degrees in finance and philosophy from Boston College, the Certified Fund Specialist (CFS®) designation from the Institute of Business & Finance, and is a member of the CFA Institute, New York Society of Security Analysts, and CFA Society Los Angeles, where he’s a Founding Member of the Wealth Management League.
Ivan Illán has excelled in both institutional asset management and financial advisory for more than 20 years. Ivan’s work has been featured in numerous articles including, The Washington Post and The Wall Street Journal. He’s a Forbes Contributor and Finance Council Member. Ivan is also ranked as a Financial Times Top Financial Adviser. He holds degrees in finance and philosophy from Boston College, the Certified Fund Specialist (CFS®) designation from the Institute of Business & Finance, and is a member of the CFA Institute, New York Society of Security Analysts, and CFA Society Los Angeles, where he’s a Founding Member of the Wealth Management League.

With so much talk about how a narrowing trade deficit could hurt the U.S. economy, it bears reminding folks that we’ve yet to see any evidence that the U.S. economy is making headway in narrowing it’s trade gap. It’s also helpful to note that over the past thirty years (chart), the only times trade deficits shrank were during U.S. recessions.

This makes sense, since the U.S. consumer is still the main driver of the world’s economy. When the U.S. puts its wallet away, there’s a natural flood of capital that remains domestically consumed, which further supports recovery during economic down-drafts.

In the latest trade data release, we see that our most recent trade deficit figures shows the U.S. hovering around levels not seen since 2004 through 2008 (chart). This is certainly surprising for those pundits that have been singing the doomsday song that a global trade war is underway.

Moreover, regardless of narrowing or expanding deficits, U.S. GDP has continued to grow (chart). A simple data set that illustrates how much U.S. economic growth and sustainability is based upon the U.S. retail and business consumption. Said another way, U.S. economic stability is not dependent on the cyclical trade surpluses or deficits that result from trade policy negotiations.