The US trade deficit reached a 10-year high of $621 billion in 2018, and the goods trade deficit with China in particular surged 11.6 percent to a record high of $419.2 billion last year, according to a Wednesday press release by the US Department of Commerce's Bureau of Economic Analysis.
In addition, the US Treasury Department announced Tuesday that the US budget deficit for the first four months of fiscal year 2019 totaled $310.3 billion, marking a 77 per cent increase compared to the same period a year ago.
Wolff, professor of economics emeritus at the University of Massachusetts, Amherst, told Radio Sputnik's Loud & Clear Wednesday that the US trade and federal budget deficits are closely related.
"Trade deficits indicate that Americans, both businesses and individuals, are more and more dependent on imports that they get. In a way, coming after two years of Mr Trump's regime, when he promised every… that he would change all of this and rebuild America's greatness in terms of producing for itself what it needs, this is a stunning failure," Wolff told hosts John Kiriakou and Brian Becker.
Trump has made the goal of reducing the US trade deficit, particularly the gap with China, a central part of his economic policy, Sputnik previously reported.
"But I really would like to add that blaming Mr Trump doesn't make a whole lot of sense, because the power of a politician, even a president, to affect all of the things that affect how trade works in the world is highly exaggerated. If you want to criticize Mr Trump, it is for the theatre of pretending that by his policies or his negotiating skills, he could undo what the last 40 years of economic development around the world has achieved. All we are seeing is that the system, capitalism, on a global scale, is a lot more powerful than the president of the US, whoever he or she might be," Wolff added.
China and the United States have been embroiled in a trade dispute since last June, when Trump announced that the United States would subject $50 billion worth of Chinese goods to 25 percent tariffs in a bid to fix the US-Chinese trade deficit. Since then, the two countries have exchanged several rounds of tit-for-tat tariffs, Sputnik previously reported. "A tariff is only one variable that shakes international trade," Wolff told Sputnik.
"Let me give you an example of [another variable that was] crucial in the last couple of years: the value of the dollar. If the dollar goes up in value, it becomes cheaper for Americans to buy foreign goods. The more valuable dollar [can] get you more units of the Chinese currency or the Japanese currency or the euro. So, if the dollar becomes more valuable, the price of everything you buy as an American from the outside becomes correspondingly cheaper. The dollar has become more valuable, so that offsets, undercuts, the tariffs," Wolff explained.
"You might even go further and say that the very growing inequality around the world, which has really become stunning over the last couple of decades, means that wealthy people around the world have become extremely wealthy, but they have become wealthy in societies where the masses of people are very poor. And that means that [for] these wealthy people, their wealth is in danger."
"So, this is what they do. They move it [their wealth] to the US, as [it is] the safest place for rich people to hide their money from their own governments. But when they move their wealth into the US, it pushes up the value of the dollar. So the irony is, the inequality that the US helps develop through its capitalist systems comes back to bite us in the rear end by undoing what the tariff was supposed to achieve," Wolff continued.
In December 2017, Trump signed the Tax Cuts and Jobs Act into law, cutting the federal corporate tax rate from 35 percent to 21 percent beginning in 2018.
"The two deficits [trade and budget] are very closely related," Wolff told Sputnik.
"The budget deficit and the trade deficit interact with one another. The easiest way to understand it is this. In December 2017, the GOP, led by Mr. Trump, pushed through a Congress that they totally controlled a so-called tax reform. The reality is that it was a tax cut for corporations, first and foremost, and for the wealthiest Americans on the other hand. And at the same time, because it was politically impossible to do otherwise, they increased government spending on a number of social programs."
"So the end result was, of course, the ballooning of the deficit, because you cut revenue by lowering taxes, and you spend more money. Here comes the connection. If you're giving billions and billions of dollars back to corporations, and if you're giving some money back to taxpayers, you're running the risk that they will use the money they don't have to pay in taxes anymore to buy goods and services overseas from the rest of the world, and that's exactly what happened," Wolff explained.