The Trade Deficit Trump Wants to Fix May Only Worsen

Investors generally view tariffs and other trade barriers as the equivalent of a tax, with increased import costs raising company costs. To the extent that companies are able to pass those higher costs on to consumers, tariffs are also inflationary, making the Federal Reserve more likely to raise interest rates more aggressively. Trade disputes also can sow uncertainty, making companies less willing to invest both in the U.S. and abroad.

Trade data released Wednesday did nothing to alleviate investors’ unease. The Commerce Department reported that the seasonally adjusted trade deficit rose to $56.6 billion in January from $53.9 billion in December, marking its highest level since October 2008. If not for America’s reduced dependence on foreign oil since the shale revolution, the deficit would have been even larger.

The trade deficit will likely continue to grow, and both Mr. Trump and Mr. Cohn have something to do with that. The tax cut and spending plans they helped usher in are likely to raise demand for goods and services among both consumers and companies this year. Some of those goods and services are going to come from abroad, so imports will rise. Exports should rise, too, since more U.S. imports should help out overseas economies, but the effect won’t be as pronounced.

The tariffs Mr. Trump announced last week are unlikely to move the needle by much on trade, especially with U.S. trading partners threatening retaliatory measures if the tariffs are enacted.  So the trade deficit, which Mr. Trump has long argued the U.S. should reduce, will likely continue to expand instead. How his administration might respond to that is yet another thing for investors to fret about.

Write to Justin Lahart at justin.lahart@wsj.com