To rub that point in, despite the tariffs on $US250 billion of China’s exports to the US, the deficit on the trade in goods with China was a record $US419 billion. Despite the "victory" in the coercive negotiations with Canada and Mexico that led to the re-writing of what used to be the North American Free Trade agreement, there was a $US19.8 billion deficit with Canada and a $US81.5 billion deficit with Mexico – the biggest deficits in a decade. The outcomes are undermining the administration’s stance, and Trump’s own rhetoric, that trade deficits reflect a zero sum game where economies with surpluses are winners and those with deficits losers; that America’s persistent deficits were the result of foreigners unfairly taking advantage of the US. The blow-out in the deficit was both predictable and understandable and underscores how limited the "Make America Great Again" and "America First" approach to trade is within complex global trading and financial systems.

There is some irony in the fact that Trump’s own policies – his $US1.5 trillion of tax cuts and the big increase in US budget deficits and borrowing requirements – have contributed to the increased deficit. The US economy has been running hot at a time when, partly due to the trade conflicts, other major economies have been cooling. China, the world’s second-largest economy, has been slowing. The European Union is barely registering any growth. The deficit in goods of $US891.3 billion was the largest in US history. Credit:Luke Sharrett The relative strength of the US economy means that it consumes more and imports more goods even as consumers and companies in China and Europe and the economies exposed to them consume less and import less. The growth in the US and the higher interest rates that have accompanied it also mean the US dollar has strengthened against its major trading partners, making imports cheaper and exports dearer.

That has been exacerbated by the tariffs, which have not only been blunted by the currency relativities but have been largely absorbed by US companies or passed on to US consumers in the form of higher prices. Loading There are also some broader macro-economic influences at play, not the least of which is a weak savings rate in the US as well as the role the US dollar plays as the world’s reserve currency. The US has to print dollars to fund its deficits and, with the US dollar the global currency for foreign exchange transactions and the dominant currency for global central bank reserves, the rest of the world needs to exchange goods and services for US dollars. While that reserve currency status does handicap the competitiveness of US exports, it lowers borrowing costs for US borrowers and enables Americans to enjoy a higher standard of living than they would if there were no trade deficits.

Trump has said he happens to be a tariff person because he’s "a smart person", but seeing trade in the narrow and binary fashion of the administration isn’t smart and hasn’t been regarded as smart since the 1930s. While there have been particular winners and losers within individual economies from free trade and globalisation, overall, both developing and developed economies have benefited from free trade. European Commission President Jean-Claude Juncker and Donald Trump are locked in their own trade deal stalemate. Credit:AP While Trump appears to be on the verge of a deal with China that will see it make some trade concessions and agree to buy significantly more US agricultural product and energy, which might be regarded as a win, increased Chinese purchases of US products will essentially cause a redirection of trade – and the trade deficits – unless the US is able to greatly expand capacity and improve its export competitiveness. A reduced deficit with China would be offset by increased deficits elsewhere. Trump appears to be on the verge of doubling down on his tariff strategy, with reports that the US Commerce Department has, conveniently, determined that imports of European autos represent a threat to US national security, the same pretext the administration used to slap tariffs on Canada’s aluminium exports.