President Donald Trump fails to understand that the key factor behind the trade deficit is that U.S. consumption exceeds production, according to Columbia University economist Jeffrey Sachs.
Continue Reading Below
“He thinks that when we run a trade deficit, it’s because the other side is cheating on us,” Sachs told FOX Business’ Trish Regan on Monday. “But we are running trade deficits with most countries, and the reason is we don’t save very much.”
Trump has vowed to reduce the U.S.-China trade deficit, which has widened to $375 billion.
“We don’t produce as much as we are demanding in total of consumption and investment, so we buy more imports from abroad and we run trade deficits,” Sachs said.
The Trump administration has increased pressure on China by threating tariffs on up to $150 billion worth of Chinese goods.
Sachs said trade has income distributional affects while expanding the overall size of the economy. The Columbia University professor is in favor of taxing some of the capital generated from trade to increase the take-home pay of U.S. workers.
“The answer isn’t to shrink the economy and stop trade; the answer is some redistribution,” Sachs said on FOX Business’ “The Intelligence Report.”