The less we save, the more we'll have a trade deficit. The yardstick shouldn't be politicized.

Share story

Something we’re not likely to hear in the State of the Union address is that Americans’ personal savings rate hit a near-record low of 2.4 percent of disposable income in December. And to the extent the speech mentions combative “America First” threats against our trading partners, this really matters.

In the 1960s and 1970s, Americans were decent savers, in the 10-percent range. The rate began to fall in the 1980s and has never again hits its old trend line. It reached a record low of 2.3 percent in September 2005, then rebounded some in the Great Recession and its aftermath, but has been on the downswing since 2016. Meanwhile, federal debt — or “dis-savings” — has been rising since the 1980s, hitting new highs as a percentage of GDP.

Federal debt in itself isn’t necessarily evil or destructive. For example, we could have borrowed at historic low rates to build subways in our cities and connect them with high-speed rail, repairing other infrastructure, and creating jobs with public investments that would eventually pay for themselves. But the United States tends to add to its debt because of tax cuts and cleaning up the mess of speculative bubbles, most notably from the Great Recession. Since 2001, we’ve been at war paid on a credit card.

Back to the trade connection. The current account balance, which is shorthand for “trade deficit” in America, is partly calculated on the national savings rate, both personal and federal — or lack thereof. Nations with positive savings rates tend to run trade surpluses. Nations with negative savings rates don’t. It’s not a morality play but a simple fact of economics. The Trump administration uses the trade deficit as its crude tool of measuring “fairness” and whether the United States is getting a good deal. This is wrong. (Also, we tend to run a surplus in services, but a deficit in goods, so large and varied is the U.S. economy).

This past April, Columbia University Professor Jeffrey Sachs warned about the economic illiteracy of the Trump team and its consequences — especially if Republicans won their massive tax cut (which they did).

“This would be a ruinous fiscal policy, yet perhaps a popular one in the short term – before the economic bills start coming due,” Sachs argued on the Project Syndicate site. “With a larger budget deficit, America’s current-account deficit would soar as well, just as it did when Reagan’s tax cuts expanded the federal budget deficit sharply in the early 1980s. One can imagine that the rising trade deficit would then lead to even more outlandish claims by Trump and his officials about alleged Chinese and German trade perfidy.”

And Canadian and Mexican perfidy, too. The problem is, all too many Americans will  believe them. That’s bad news for trade-dependent states such as Washington. Torpedo NAFTA, and the pain will hit the Trump heartland, too. Who will be salt-of-the-earth white working folks blame then?


Today’s Econ Haiku:

The plants are happy

But are workers cowering?

Oops, wrong CEO