I don’t agree with Donald Trump’s view that trade deficits are bad.

Why? Because I understand that a trade deficit is merely the flip side of a capital surplus. In other words, when foreigners earn dollars, they often think investing in the American economy is the best use of that money.

I also understand that the United States has a much bigger and much richer economy than our trading partners, so of course Americans can afford to buy more from them than they buy from us.

Needless to say, Trump has a different perspective on trade deficits. He thinks they are a sign that America is getting “ripped off.” Indeed, he is so distraught about the balance of trade that he has unilaterally imposed huge tax increases on Americans who buy imports.

So is that policy working? The bad news is that prices are higher, the economy is less efficient, domestic investment is weak, and jobs are being lost. But, from Trump’s perspective, is it okay to suffer all that collateral damage because at least the net effect is a smaller trade deficit?

Well, not exactly. Here’s a chart comparing trade balances for the first three quarters of 2024 and 2025. As you can see (and as I predicted back in January), the trade deficit this year has increased. It’s now more than $100 billion larger.

The bottom line is that Trump has destabilized the American economy and the world economy and the net effect – according to the metric he cares about – is a bigger trade deficit.

By the way, some readers may be tempted to dismiss the above chart because nine months of data might simply be an anomaly.

Since I’ve repeatedly warned about not drawing big conclusions from small slices of data, I agree that some skepticism is warranted.

But now let’s look at four years of data from Trump’s first term. Lo and behold, we see the exact same pattern of higher trade taxes and higher trade deficits.

Incidentally, I’m not claiming that higher trade taxes cause higher trade deficits. My only point is that Trump’s policy has not produced the result he wants.

Gee, it’s almost enough to make one think protectionism is not a good idea.

P.S. Here’s my video explaining why we should not care about trade deficits.

If you like that video, I invite you to watch my videos on the economics of trade, trade and creative destruction, and the role of the World Trade Organization.