President Donald Trump launched a trade war to eliminate the longstanding US trade deficit. But the trade deficit has only grown on his watch because tariffs

were the wrong policy choice.

Trade deficits are not always a bad thing, but a wealthy country like the United States should not run a perpetual deficit. Decades of US trade deficits have piled up debt that makes future generations of Americans less well off, as they must pay interest and dividends to foreigners. Cheap imports and the decline in exports have also contributed to the loss of a significant number of US manufacturing jobs.

The main cause of the deficit is a secular overvaluation of the dollar, driven by excessive financial flows into dollar assets from foreign official and private investors. Although Trump’s policies have failed, achieving balanced trade is not a hopeless quest. President-elect Joseph Biden should direct his Treasury secretary to pursue a more sensible dollar policy that can tame the deficit without violating

any international norms or rules.

The failure of Trump’s tariff-based approach to shrinking the trade deficit comes as no surprise to economists. Mainstream economics says that tariffs mostly affect relative prices across countries and the overall level of trade, not the balance of trade. Combating foreign currency manipulation is the one element of Trump’s strategy that has the potential to help, but the single-minded focus

on China—which has not manipulated its currency since 2014—has blinded the administration to ongoing manipulation by other countries.