WEST LAFAYETTE, Ind. – The use of tariffs by the U.S. in an attempt to lower the country’s trade deficit may not be the best approach, according to a Purdue University professor of agricultural economics.

President Donald Trump has persuaded many that unfair foreign trade policies are the source of persistent U.S. trade deficits, Russell Hillberry said. The question, he noted, is if tariffs solve that problem. “I’m going to tell you the answer is almost certainly not. I think trade deficits work very well as politics in the sense that it has led export interests and import competing interests to both see trade deficits as the problem and possibly tariffs as the solution.”

Persistent trade deficits are driven by larger macroeconomic forces that result in net national borrowing by the U.S., said Hillberry, who spoke during the Purdue Top Farmer Conference in January.

“U.S. tariffs work against the interests of export-oriented agriculture,” he noted. “They’re very likely going to slow economic growth and they diminish U.S. influence in the world. This is because people in Washington are not understanding these basic lessons of the international trade textbook.”

Some people want to focus just on the country’s trade balance in goods, but the U.S. has a surplus of exports of services, such as research and development, consulting, travel, information services, tourism and education, Hillberry said.

The U.S. has been able to borrow from foreign investors, he said, but those investors expect to get paid back. “The fact that we could do that for so long is a sign that they do trust us to pay them back. So our persistent deficits can be interpreted and should always be understood, in part, as a sign of strength that foreign investors are trusting us to get them a good return, to pay them back.”

Hillberry said the trade deficit is so prominent in the country’s discussion of politics because the interests of some groups are fundamentally not aligned. Export interests have one interest in trade policy and import competing interests have another, he said. As an example, Hillberry mentioned that those in the audience for the conference would probably like a wide open trading system where they could sell their exports. Those in the steel industry, however, would rather not have to compete with steel coming in from the rest of the world.

He mentioned China’s reaction to the 2018 tariffs imposed by Trump. That country’s long-term response to the tariffs was to cultivate other sources of imported soybeans, reduce soy in animal feed mix and to adopt GMOs for domestic production, Hillberry said.

A Goldman Sachs report forecasts the import share of China’s soybean consumption will fall from 90 percent to 30 percent within the decade, he said. “They’re trying to become self sufficient and it’s working,” Hillberry said.

“None of this was necessary,” he pointed out. “The tariffs are not going to solve the trade deficit. They’re going to move things around. If we do want to reduce the trade deficit, what we need to do is reduce the government borrowing. There’s a lot of good reasons to reduce government borrowing, and eliminating the trade deficit is way down on the list.”