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What To Make Of The Week In Weak Economic News

SCOTT SIMON, HOST:

A lot of discouraging economic news this week. The U.S. trade deficit hit a record high last year despite President Trump's America First trade policies, and a weak jobs report yesterday, just 20,000 jobs added in February after a couple of blockbuster months before that. To try and help us sort out this news is Catherine Rampell, who writes about economics for The Washington Post. And she joins us from our studios in New York. Catherine, so much - thanks so much for being with us.

CATHERINE RAMPELL: Great to be here.

SIMON: Let's begin with that trade deficit. It grew to $891 billion in 2018, the highest on record. President Trump campaigned against it. He said enough's enough. What happened?

RAMPELL: So one thing I want to say right out of the gate is that deficits are not necessarily a bad thing. I know Trump hates them, and he thinks that they're a sign of who's winning and who's losing. They actually reflect much broader macroeconomic factors in the economy like savings and investment.

That said, why is Trump failing at reducing this metric that he thinks is a measure of success? And I think it partly - largely, although not exclusively - has to do with Trump's own economic policies, both his fiscal policies and his trade policies. So on the fiscal front, what I mean is that we had this major tax cut, of course. We also had a big federal spending hike. Both of those things kind of goosed the economy.

And when you have a stronger economy and stronger growth, consumers have more money in their pockets. They want to buy more stuff, and a lot of that stuff comes from abroad. So that helped improve the number of imports that are coming in, which weighs on the deficit.

Beyond that, the U.S. economy is doing well, while a lot of other major trading partners' economies - China, the EU, the U.K. - they're not so hot. And the combination of us doing well and their doing less, well plus Fed interest rate hikes, means that the dollar got stronger, which also means that our exports got less competitive. They got a little bit more expensive. So that's all the fiscal stuff. And I would add that, you know, Trump may want to cool it with the schadenfreude about China's economy faltering because that means that they're buying less stuff from us or that our dollar gets stronger.

But then there's also, of course, his trade policies, which he has been using, he thinks, specifically to target the deficit. And in many ways, they have backfired. And what I mean by that is that by putting tariffs on imports coming into the United States or threatening even higher tariffs, as he has repeatedly done with China, for example, or with autos, what happens is that American importers freak out. And they basically start stockpiling stuff from abroad to try to outrun those tariffs. So that, again, leads to more imports. And then, on the other side of the ledger, you also have...

SIMON: We just got 30 seconds left, you know.

RAMPELL: Sure. Sure. Sorry.

SIMON: You're being marvelously complete, but go ahead.

RAMPELL: Yeah.

SIMON: Yeah.

RAMPELL: (Laughter) On the other side of the ledger, you also, of course, have retaliatory tariffs, which are targeting American exports like soybeans and bourbon. So there's less demand for those abroad.

SIMON: Jobs report just a blip or a trend?

RAMPELL: You know, there's a huge margin of error in this jobs report. It could very well be a blip. It could just be offsetting what looked like possibly a blip the last couple of months. There have been a number of reports that came in recently that were pretty disappointing, so maybe there's a slowdown. But I wouldn't freak out just yet.

SIMON: Catherine Rampell of The Washington Post, thanks so much for being with us.

RAMPELL: Thank you. Transcript provided by NPR, Copyright NPR.