And here I thought that the only big surprise in this morning’s U.S. government report on the nation’s economic output (the gross domestic product, or GDP) would come in the annual revisions – which update the data going back to the first quarter of 2015. After all, it’s long been obvious that the second quarter results would be dreadful, due to the CCP Virus-induced shutdown of so much of the U.S. economy.
The revisions were indeed pretty surprising, but the first set of estimates covering the second quarter of this year still contained one entirely (at least to me) unexpected finding: Despite the nearly 38 percent inflation-adjusted sequential crash dive of the economy (at annual rates), the real trade deficit didn’t fall much at all. Indeed, between the first and second quarters, the annualized decrease was only 3.71 percent (from $788 billion at annual rates to $780.7 billion).
The big virus-related effects came during the first quarter, when the annualized quarterly shrinkage was 34.13 percent annualized. Moreover, the price-adjusted trade shortfall had also plummeted by 37.33 percent at an annual rate between the third and fourth quarters of last year, as President Trump’s massive tariffs on China continued to be felt, and tariff front-running – which aimed at avoiding theatened and imposed new levies since the Trump trade wars began, and which inflated import totals over the short-term – subsided.
As for that huge first quarter sequential decrease in the price-adjusted trade deficit, it’s now the biggest such move since the 72.53 percent plunge between the first and second quarters of 2009, when the Great Recession was bottoming.
All the same, the revisions were indeed interesting – and important. For starters, that $788 billion annualized first quarter trade deficit was previously reported as being $815.5 billion. Meanwhile, the $780.7 second quarter after-inflation trade deficit is the country’s smallest quarterly gap since the $792.3 billion figure of the first quarter of 2017.
At least as interesting, the GDP revisions make the Trump administration’s trade record look a good deal better than previously reported, while leaving the results for the last two years of the Obama administration basically unchanged. That’s not obvious from the table below, which shows the old and new constant dollar trade deficit results for the last four full years in billions of dollars:
2019: 917.6 953.9
2018: 877.7 920.0
2017: 816.8 858.7
2016: 763.6 586.3
2015: 719.5 540.0
But there’s a big problem with these statistics. They’re measuring apples versus oranges. The 2017-19 results have been presented by the Commerce Department in terms of 2012 dollars. The original 2015 and 2016 results, however, (which I found by going through pre-revisions GDP releases) were presented in 2009 dollars, but in their updated versions, they’re presented in 2012 dollars. In other words, the inflation adjustment factor is different. All the same, the Trump deficits, themselves, are notably smaller than they were previously reported.
To permit a legitimate comparison between the two administrations, it’s necessary to drop the inflation adjustment altogether, and present the annual trade deficit results in current (billions of) dollars. That’s what the next table shows:
2019: 610.5 631.9
2018: 609.5 638.2
2017: 555.5 578.4
2016: 512.5 521.2
2015: 526.6 522.0
All three Trump results are, again, better than previously reported, although the difference is significantly smaller than for the inflation-adjusted figures. For the Obama years, the 2016 results are a little better, but the 2015 results are a little worse.
Even so, there’s still no doubt that the Trump trade deficits are higher than those of the last two Obama years. But as known by RealityChek regulars, sometimes individual data sets like this don’t tell the whole story. And with the trade figures, it’s important to compare them with the size of the whole economy. For this exercise, let’s keep it simple and stick with the new pre-inflation statistics. This table shows the current dollar trade deficit as a percentage of current dollar GDP:
2019: 2.85 percent
2018: 2.96 percent
2017: 2.84 percent
2016: 2.73 percent
2015 2.89 percent
Here a modest edge goes to those two Obama years, at least looking at the average. At the same time, the former President was conducting trade policy business-as-usual. Mr. Trump is conducting a major experiment in disruption that’s bound to create adjustment-related inefficiencies, at least in the short run. That is to say, the full results aren’t in. And a major question looming over the U.S. economy in this election year is how long it will be permitted to continue.