With the release yesterday morning of the U.S. government’s trade report for December (the same morning, frustratingly for me, that the official January jobs figures came out), the final scorecard on former President Trump’s trade policy record is sort of in.
I say “sort of” because (1) these numbers will be revised several times; (2) the full impact of Trump’s tariff-centric policies on the economy won’t be apparent for many years (especially since President Biden has decided to keep in place for te time being all of the steep and sweeping Trump China levies); and (3) the powerfully distorting effects of the CCP Virus will be with us for at least many more months.
Keeping all these caveats in mind, let’s focus on the annual rather than the monthly figures, since they cover a much longer time frame, and see how even this preliminary 2020 data points to some important conclusions about what was and wasn’t accomplished under Trump. And the accomplishments were anything but negligible.
As widely reported (see, e.g., here and here), the combined goods and services deficit hit $678.74 billion last year – the highest annual figure since 2008. So given Trump’s emphasis on narrowing the gap, and given the annual increase of 17.42 percent (far from a record) during the worst recessionary year since 1946, the result looks like a major Trump failure.
At the same time, RealityChek regulars know that economic data presented in isolation rarely prove informative. So in this vein, it’s important to note that the 2020 overall trade deficit as a share of the entire economy (gross domestic product, or GDP) was much lower than in 2008 – 3.24 percent versus 4.84 percent. P.S. 2008 was a recession year, too. And though it wasn’t nearly as deep as last year’s downturn, it still saw a slight increase in the trade shortfall. Finally, let’s remember that the previous Great Recession resulted from failures in the economy’s fundamentals that were permitted to reach crisis proportions.
This latest downturn has stemmed largely from government decisions literally to shut down much of the nation’s economic activity due to a pandemic coming from China, and created deficit-boosting problems having little to do with U.S. trade policy.
For example, $50.41 billion of the $101.56 billion annual increase in the deficit in absolute terms came from a shrinkage in the services trade surplus that was by far a record in absolute terms and the second greatest relatively speaking (17.54 percent) since recessionary 2001 (19.58 percent).
Another $36.01 billion of the increase in the overall 2020 deficit came from a drop in the civilian aviation sector surplus that had nothing to do with Trump tariffs or retaliation and everything to do with Boeing’s safety woes and the pandemic-induced nosedive in domestic and global air travel.
And another $20.92 billion of the deficit increase came from the computer and computer accessories sectors, where imports surged due to the growth of working, schooling, and otherwise Zooming from home prompted by the pandemic.
These shifts had an especially marked effect on that portion of U.S. trade flows deeply influenced by trade policy decisions like the Trump tariffs. As known by RealityChek regulars, I call the huge deficit still run in these sectors collectively the “Made in Washington” trade deficit, because it strips out two parts of the economy (services and energy) that are rarely the focus of trade agreements or related policies.
Between 2019 and 2020, this trade gap expanded by $83.03 billion, to an all-time high of $923.03 billion. But as just made clear, the non-trade policy growth in the civilian aviation and computer-related sectors made up $56.93 billion (or 68.57 percent) of the difference. And even counting these one-off developments, the Made in Washington trade deficit during the Trump years grew much more slowly as a share of GDP (by 22.16 percent) than during the second term of Barack Obama’s presidency (33.21 percent).
Similar trends can be seen in the manufacturing sector. Its deficit worsened in 2020 by $79.63 billion, to a record $1.1128 trillion. But without the bigger deficits in aviation and computers, it would have fallen year-on-year. That hasn’t happened since recession-y 2009. As a share of GDP, the manufacturing trade deficit also rose more slowly during Trump’s term (13.70 percent) than during Obama’s second term (14.14 percent).
Much of this progress, in turn, owed to the substantial reduction in the huge, chronic, U.S. manufacturing-dominated goods trade deficit with China. Even though the $83.03 billion widening of the comparable Made in Washington trade deficit gap in 2020 represented a 9.88 percent rise, the China goods deficit dropped by $34.04 billion, or 9.97 percent. And at $310.80 billion, the goods trade deficit with China was America’s smallest since 2011 ($295.25 billion). Surely Trump’s tariffs on $360 billion worth of Chinese imports (in pre-tariff times), and his Phase One trade deal, which required increased imports from the United States by Beijing, deserve considerable credit.
Further, as a share of U.S. GDP, the goods gap with China sank all the way to 1.48 percent in 2020. During Obama’s last year in office, that figure stood at 1.85 percent – a modest decrease from 1.95 percent in the last year of his first term. But even if you take away the deeply recessed U.S. economy of 2020 and look at only the first three Trump years, you see that the China goods deficit stood at only 1.61 percent of GDP – meaning it had still fallen considerably faster under his presidency.
What happens with U.S. trade flows – and all the sectors of the economy they profoundly affect – though, will remain unclear for the foreseeable future. For not only is the direction of Biden administration policy substantially up in the air. So is the future course of the pandemic, including whether vaccines can be rolled out fast enough to stem its tide, and whether they can keep up with mutations. And all of the CCP Virus-related uncertainties will of course largely determine how fast the economies of America’s trade partners recover, how much they export, and how much they import.
But even though the results of upcoming official trade reports will need to be taken with several boulders of salt, it’s nonethless clear that if the main policy-fostered Trump trends continue under the Biden administration, American workers and producers of all kinds will have reason to be grateful.