This morning I listened to the first hour of oral arguments before the United States Court of Appeals for the Federal Circuit in the case of V.O.S. v. Trump – the case challenging Trump’s April 2nd, 2025, “Liberation Day” tariffs. Both because I have listened to too few such arguments before appellate courts, and because the audio quality was often too poor for me to clearly hear what some of the judges were saying, I here offer no assessment of which side the court will likely favor when it announces its decision. But I will offer here one observation.
The attorney for the administration, Brett Shumate, was compelled by his task to repeat the economically ludicrous argument that U.S. trade deficits are a national emergency. When pressed by one of the judges to explain how an economic phenomenon that has persisted “for decades” is an emergency, Shumate asserted that Trump was motivated by a recent “spike” in the trade deficit.
Has there actually been any such “spike”? I heard no judge ask about this matter during the main presentations (which are all that I listened to). So let’s look.
The April 2nd Executive Order (No. 14257) says nothing about any such spike or recent upsurge or swelling of the trade deficit. Here are the E.O.’s opening paragraphs:
I, DONALD J. TRUMP, President of the United States of America, find that underlying conditions, including a lack of reciprocity in our bilateral trade relationships, disparate tariff rates and non-tariff barriers, and U.S. trading partners’ economic policies that suppress domestic wages and consumption, as indicated by large and persistent annual U.S. goods trade deficits, constitute an unusual and extraordinary threat to the national security and economy of the United States. That threat has its source in whole or substantial part outside the United States in the domestic economic policies of key trading partners and structural imbalances in the global trading system. I hereby declare a national emergency with respect to this threat.
On January 20, 2025, I signed the America First Trade Policy Presidential Memorandum directing my Administration to investigate the causes of our country’s large and persistent annual trade deficits in goods, including the economic and national security implications and risks resulting from such deficits, and to undertake a review of, and identify, any unfair trade practices by other countries. On February 13, 2025, I signed a Presidential Memorandum entitled “Reciprocal Trade and Tariffs,” that directed further review of our trading partners’ non-reciprocal trading practices, and noted the relationship between non-reciprocal practices and the trade deficit. On April 1, 2025, I received the final results of those investigations, and I am taking action today based on those results.
Large and persistent annual U.S. goods trade deficits have led to the hollowing out of our manufacturing base; inhibited our ability to scale advanced domestic manufacturing capacity; undermined critical supply chains; and rendered our defense- industrial base dependent on foreign adversaries. Large and persistent annual U.S. goods trade deficits are caused in substantial part by a lack of reciprocity in our bilateral trade relationships. This situation is evidenced by disparate tariff rates and non-tariff barriers that make it harder for U.S. manufacturers to sell their products in foreign markets. It is also evidenced by the economic policies of key U.S. trading partners insofar as they suppress domestic wages and consumption, and thereby demand for U.S. exports, while artificially increasing the competitiveness of their goods in global markets. These conditions have given rise to the national emergency that this order is intended to abate and resolve.
Note that Trump here complains about “large and persistent annual U.S. goods trade deficits” – nothing here (or elsewhere in the E.O.) about any sudden upsurge or ‘spike’ in trade deficits generally (that is, trade in goods and services). Note also that Trump’s complaint is about “U.S. goods trade deficits” with individual countries – a concept that’s economically irrelevant.
The closest this Executive Order comes to suggesting a ‘spike’ is this passage on page 8:
I have declared a national emergency arising from conditions reflected in large and persistent annual U.S. goods trade deficits, which have grown by over 40 percent in the past 5 years alone, reaching $1.2 trillion in 2024.
Over the previous five years, from 2014 to 2019, the increase in the U.S. “goods trade deficit” was about 15 percent – and so, yes, 40 percent is significantly larger than 15 percent. But the E.O. doesn’t do even as much as I did in the previous sentence to put this 40-percent increase in perspective. Has there never been another five-year period when this (economically meaningless) “goods trade deficit” increased by a percentage amount comparable to 40 percent? I don’t know, and I’ll bet that neither Trump nor his lawyers know. I certainly heard nothing from the government lawyer, in today’s oral argument, about perspective on this matter.
It cannot be said too strongly that “goods trade deficits” mean nothing economically. These “deficits” are no more economically meaningful than “yellow-things trade deficits” or “things-shorter-than-four-feet trade deficits.” Nearly 80 percent of U.S. production is of services, so even if you insist on supposing that tangible things are, as an economic matter, categorically different from intangible things, the fact that the U.S. runs so-called “goods trade deficits” is no more surprising than is the fact that Antarctica in July is cold.
In a follow-up post I’ll look at the economically meaningful concept of trade in goods and services, given that, in today’s oral argument, that seems to have been what the attorneys and the judges we talking about – or, at any rate, that’s what someone who did not read the executive order would likely think they were talking about.
