Even as the Mueller Report and its aftermath and the intensification of the 2020 presidential campaign suck up most of the media oxygen, evidence keeps coming in that President Trump’s trade policies are achieving many of the successes they’ve targeted.
A little over a week ago, I reported on how the overall U.S. trade data have resumed showing that the nation’s economy is closing the gap between its growth and that of its trade deficit – a feat accomplished way too seldom in recent decades, and that indicates that domestic production is beginning to replace imports. That development in turn mean that such output is starting to replace spending as the main engine of expansion. If the trend continues, American prosperity will gain a much stronger foundation.
The same week that those encouraging combined goods and services trade numbers came out, the federal government also released data confirming that manufacturing is making similar progress. That’s important because industry still dominates U.S. trade flows, because its historic (though not recent) productivity growth has been so strong, because it’s so crucial to the nation’s high tech future. Manufacturing also boasts a healthy jobs multiplier – that is, the creation of each new manufacturing position adds many more jobs throughout the rest of the economy. And it’s long displayed the potential to enable working class Americans to live middle class lives (even though its recent wage performance has been relatively weak.)
The statistics showing the narrowing gap between the growth of the huge, chronic manufacturing trade deficit and the expansion of manufacturing output came out in the Commerce Department’s April 19 findings on “Gross Domestic Product by Industry.” They bring the story through the end of 2018, and here’s the bottom line:
Last year, domestic manufacturing output rose by 7.11 percent before adjusting for inflation. (The growth measure being used here is value-added, which minimizes the double-counting that can occur when economists calculate the production increases of final products, and of the parts, components, and materials comprising them.) That’s incidentally the best such figure since 2006’s 5.93 percent.
Even more important, though, in 2018, the current-dollar manufacturing trade deficit widened by 10.98 percent. So it increased 1.54 times faster than manufacturing production. But the difference between the two was less than in 2017. That year, pre-inflation manufacturing output improved by 4.53 percent, but the manufacturing trade deficit worsened by 7.31 percent, or 1.61 times faster.
That doesn’t sound terribly impressive. But recall that the 2018 results clearly have been distorted by the front-running of import purchases produced by the Trump tariffs in the second half of the year – i.e., by U.S. businesses seeking to buy products from China in particular before previously announced levies went into effect and boosted their prices. As a result, imports surged, and brought to a temporary halt the progress on this front that represented a major contrast with the figures for the Obama administration years, as shown in this post.
The front-running effect can easily be seen in the numbers for each quarter of last year:
mfg output mfg trade deficit (both at annual rates)
4Q 17-1Q 18: +1.20 percent -7.49 percent
1Q 18-2Q 18: +2.51 percent +4.42 percent
2Q 18-3Q 18: +1.03 percent +10.81 percent
3Q 18-4Q 18: +1.34 percent +10.05 percent
The good news for domestic manufacturing and for the economy in general: The early 2019 monthly trade figures show that the front-running is over. Indeed, the February manufacturing trade deficit of $71.29 billion was the lowest monthly total since April, 2017’s $70.15 billion. And manufacturing imports in February fell on month by a very big 9.14 percent while exports eaked out a 1.85 percent sequential gain.
It would be great to compare the manufacturing trade and growth numbers for the first quarter of this year with those of spring, 2017. But the former won’t be out until May 9 and we’ll need to wait until July for the latter.
For now, though, the latest statistics make clear that the Trump trade strategy is back on a winning track. And logic at least indicates that, all else equal, it should remain so, provided the President stays the general course.