, , , , , , , , , , ,

OK, let’s cut to the chase regarding the new U.S. trade deficit data. (We’ll analyze today’s report from the Census Bureau more comprehensively tomorrow.)

The most important result revealed by the figures – which bring the story up to December and therefore give us our first look at full-year 2019 development – isn’t that the overall U.S. trade deficit fell year-on-year last year (which alone indicates that President Trump is starting to keep one of his signature campaign promises). It isn’t that the huge annual China goods deficit cratered (by 17.62 percent, the biggest such drop on record – including Great Recession year 2009 – and indicating another promise being kept). It isn’t that the still-huge manufacturing deficit has virtually stabilized despite the safety woes of Boeing, long the generator of major trade surpluses. And it isn’t even that these trade gaps have narrowed even as the economy has continued growing acceptably (which most economists insist is practically impossible, especially for a consumer-heavy country like the United States).

Instead, the most important result is that this economic growth continued in 2019 even as that portion of the trade deficit most influenced by trade policy increased at a particularly slow rate. The obvious conclusions? Trade policy can influence the size and rate of change in the trade deficit, and that the Trump trade policies are working.

To remind, this portion of the trade deficit (which I call the Made in Washington trade deficit) sheds light on the above points because it’s the non-oil goods deficit. It’s highly trade policy sensitive because it strips out of the total trade balance numbers the services balance (because so little progress has been made in worldwide services trade liberalization) as well as the oil balance (because oil is rarely the subject of trade deals or other trade policy decisions).

The table below presents the numbers for the last three years of the Obama administration and the first three of the Trump administration – a comparison that’s apt because these time periods are right next to each other in the current (expansionary) business cycle.

Made in Washington trade deficit % change     GDP % change          ratio

2013-14:        +19.35                                                 +4.42                4.38:1

2014-15:        +21.23                                                 +3.98                5.33:1

2015-16:          +2.41                                                 +2.69                0.97:1

2016-17:          +8.05                                                 +4.30                1.87:1

2017-18:        +12.66                                                 +5.43                2.33:1

2018-19:          +1.75                                                +4.12                 0.42:1

As is obvious from the above, the Made in Washington deficit’s growth rates during the Obama years (measured in pre-inflation terms) have been considerably slower than those of the Trump years. And yet the GDP (gross domestic product) growth rates of the first three Trump years have been notably faster than those of the last three Obama years.

In other words, as made clearest by the right-hand column, which shows the ratio between the two, the link between economic growth and trade deficit growth has been weakening significantly during the Trump years. And the President’s tariff-heavy trade policies have plainly played a major role. All else equal, moreover, that means growth that’s more nationally self-sufficient (no small achievement in a still dangerous world), healthier, and therefore more sustainable.

President Trump makes way too many false or exaggerated boasts about the economy (among other subjects). But the 2019 trade data show that when it comes to trade policy, he’s entitled to considerable bragging rights.