One of the many risks of a Trump presidency is a disruption in trade. But, in thinking through the issue, I can't quite imagine what would happen in today's context.
The large trade deficit today is peculiar. Part of the reason it is so large is that many of our most productive corporations operate in frontier information and financial sectors that don't involve the movement of goods across a border. So, if Google makes a profit in Australia, it is more likely to register as the revenue and profit of a foreign subsidiary than as an export. Part of the trade deficit is simply the result of this semantic distinction.
But, the trade deficit is the mirror image of the capital surplus. We send a lot of dollars overseas to buy goods, and instead of using those dollars to buy goods from the US, foreigners save a lot of those dollars and invest them in the US. Funny thing is, though, after decades of this - after trillions of dollars of excess investment - the income US investors make on foreign investments outpaces the income that foreigners make on their US investments by a wider margin than ever before. Foreigners are running to stay still, at best.
I think the reason for this is that the US has many global corporations who are earning above market returns. (I have come to attribute that to the role of urban housing in the information economy, but that's a complicated story.) Whatever the cause, the implications of this are interesting. US firms are reinvesting our foreign profits in high return operations. If we reinvest $100 billion that will earn 10% returns, then if foreigners can only earn 5% returns, they have to invest $200 billion in the US just to maintain a stable net international capital income.
This is why we have a sustainably large trade deficit. Foreigners have to keep selling us stuff in order to maintain a capital income. If they stopped selling us stuff to invest it, our net foreign income would balloon, and our firms would end up owning an accelerating portion of their capital. Currency values, interest rates, trade levels, etc. adjust to an equilibrium that draws foreign capital to the US.
So, given this context, what would happen if the US imposed a policy with the aim of reducing the trade deficit? The causal factor for the deficit - the need for foreigners to save - would not go away. It wouldn't be that difficult for foreign markets to enact tariffs, etc. to instigate a trade war. But, they would need to stop our corporations from getting revenues through their foreign subsidiaries. That is a little more difficult and intrusive. It would involve some sort of capital repression, nationalization, etc. Would they be willing to go that far?
If they didn't go that far, and there was still pressure to gather dollars in order to invest in US assets, then what would give? Would the trade deficit remain, and US tariffs would end up being a revenue source for the US government, with little effect on trade? Would production move back to the US? If it did, and the trade deficit declined, then would our foreign assets and income balloon? Would the dollar rise in value?
I'm having trouble imagining all the moving parts. Anybody have any ideas?