The Trade Deficit Shrinks For The Wrong Reasons

JM Ashby
Written by JM Ashby

Our trade deficit with the rest of the world declined for the first since 2013 last year and the Trump White House will probably celebrate that fact, but it did not shrink for good reasons.

Ideally, the trade deficit would shrink because we're exporting more goods, but American exports also declined for the first time since President Obama was in office according to the Commerce Department.

The trade deficit dropped 1.7% to $616.8 billion last year, declining for the first time since 2013. That represented 2.9% of GDP, down from 3.0% in 2018.

Goods imports plunged 1.7% last year, also the first decrease in three years. The United States imported 2.4 billion barrels of crude oil, the fewest since 1992, as the country significantly reduced its dependence of foreign oil amid a surge in production and exploration.

It also imported fewer capital and other goods. The 1.3% tumble in exports was led by decreases in shipments of capital goods, industrial supplies and materials, and other goods.

I certainly don't expect a single Republican will ponder the implications, but they should.

The United States officially exported more American-made goods while President Obama was in office with no trade war and no tariffs on the books. So, if the purpose of Trump's trade war is to force other nations to buy more American goods, it has been quite a failure. The trade war has had the effect slowing the flow of goods in both directions, but it has not fundamentally altered our trade relationships or the structure of our economies.

I'd like to see white labor leaders and anti-trade members of congress tell me we're better off for having withdrawn from the Trans-Pacific Partnership (TPP) or by imposing tariffs on Chinese and European goods. Trump has done all of these things and it only decreased our exports. Demand for American goods has declined and that means lower prices and fewer jobs. You have to believe your own eyes at some point.

  • muselet

    Imports were down by 1.7% last year. Exports were down by 1.3%. That doesn’t look to me like The Greatest Economy Ever!, that looks like a contraction.

    Okay, fine, economists are carefully not calling it a contraction, but consider all the jobs impacted by decreased trade (in both directions). Directly and indirectly, people’s livelihoods depend on trade, and Donald Trump’s trade wars with seemingly every country and region on Earth are reducing trade.

    A sizable part of the post-WWII consensus was that trade was good for world peace: countries that sold each other stuff would be less likely to start shooting at each other. That’s why the World Trade Organization and other trade-related international institutions, with all their rules and regulations so loathed by the nationalist Right, exist.

    So not only is the Trump economy not as good as the Obama economy (keeping firmly in mind that presidents can only slightly affect the performance of the economy, at least directly) by many metrics, but the policies—to use the term loosely—of the Trump administration are almost guaranteed not to improve those metrics.

    You have to believe your own eyes at some point.

    I’d like to think so.