At this point, it is not news that the President of the United States is a fan of tariffs. He has gone so far as to (sarcastically or not) christen himself “Tariff Man,” in a tweet earlier this month. What is also not new is that President Trump seems to fundamentally misunderstand how international trade works. The president thinks that a trade deficit — even a bilateral trade deficit with a single country — necessarily has a negative impact on the US economy. He is wrong on this, to be sure, but even on his own terms the president’s attempts at alleviating the bilateral trade deficit with China have failed. In fact, the president’s tariffs have, predictably, had the opposite effect: the month-to-month trade deficit with the rest of the world is higher in 2018 than it was in 2017, and by all accounts the total bilateral trade deficit between the United States and China for 2018 will easily surpass the 2017 number.

President Trump’s tariffs on steel and aluminum were announced in March of 2018. At that time, the US trade deficit with the rest of the world stood at $68.5 billion. As of this July, that number had increased to $72 billion. The most recent number, from October of this year, shows the trade deficit increasing to $76.98 billion.

The same is true for the bilateral trade deficit with China. In January 2018, the US had a $35.9 billion trade deficit with the Chinese. As of October, the bilateral trade deficit with the Chinese had grown to $43.102 billion.

Note that all these numbers are sum totals for that specific month. If the overall trade deficit with the Chinese had only increased by $8 billion over the course of 2018, then perhaps the President would have a case to make that his tariffs did not increase the trade balance to a greater extent than that number would have appreciated anyway in their absence. This, however, is not what happened. The monthly trade deficit with China increased by $8 billion from January through October. The annual trade deficit, following this trend and aggregating each monthly increase, is on pace to increase far more dramatically over the $718 billion figure from 2017.

On first analysis, one might think that taxing foreign metals at 15%-30% would drive down imports. Perhaps that happened, to some extent, but the overall effect was too negligible to swing the balance of trade to an outcome the president would consider favorable. Instead, the president’s tariffs have invited retaliation from the Chinese that has battered US exports. Further, the president’s deregulatory efforts and significant tax cuts likely contributed to a boon in foreign investment in the United States. To invest in the United States, foreigners need dollars, and the best away to acquire dollars is to sell goods or services to American consumers, thereby increasing the current account deficit.

Paradoxically, then, each of the president’s banner economic policies have contributed to a larger overall (and bilateral) trade deficit. Given how at least some of these measures have also been a boon to the overall health of the domestic economy, perhaps President Trump will come to realize that the trade deficit is not in fact the indicator of economic stagnation that he thinks it is.

In fact, trade deficits mean nothing by themselves, and often indicate nothing more than healthy capital markets inured with foreign investment. Indeed, that is the double-edged coin of trade accounting: the dollar amount of the current account deficit in goods and services must necessarily equal the capital account surplus in foreign investment. The two measures are simply alternate sides of the overall picture of total foreign trade conducted by and with Americans. Taken alone, all that can be said of a trade deficit is that it indicates a shift to a greater export of investment opportunities and import of goods and services. Trade is dictated by the laws of comparative advantage, whereby one specializes in that good or service in which he has a comparative advantage, trades the surplus, and gets someone else’s surplus in exchange. The US has superior property rights and capital markets, and so it should be no surprise that it is a desirable market for foreign investment. Correspondingly, even if the United States can produce certain manufactured goods more cheaply and more efficiently than other countries (even if it enjoys an absolute advantage in the production of those manufactured goods), it can make sense to import those goods and focus on providing a stable and profitable capital market.

That is not to say that the government of the United States has necessarily made it a policy goal to attract foreign investment at the expense of subsidizing exports (although the case could be made that it has). In fact, the whole point of the market is that individual producers and consumers and savers and investors are making these decisions. Overall, if it makes sense for an aggregate of individual actors in the marketplace to make investment and consumption decisions that generate a trade deficit then that is what will happen. Trade does not need government direction; it is just the result of the laws of the marketplace extrapolated over borders and across oceans.