(What’s Left of) Our Economy: Through the Pandemic Fog, Signs of Trump Trade Progress Keep Coming

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(What's Left of) Our Economy, aircraft, Boeing, CCP Virus, Census Bureau, China, coronavirus, COVID 19, exports, goods trade, healthcare goods, imports, Made in Washington trade deficit, manufacturing, manufacturing trade deficit, medical devices, non-oil goods trade deficit, pharmaceuticals, services trade, tariffs, Trade, trade deficit, trade war, Trump, Wuhan virus

Proof positive that much of the U.S. government grinds on whatever the political tumult surrounding it: Despite the controversies that erupted due to the largely unexpected, still-incomplete, and increasingly contested Presidential election results, the Census Bureau nonetheless still put out the new monthly U.S. trade report yesterday – this one taking the story through September.

And by the bizarro economic standards of the bizarro CCP Virus era, the figures were strangely normal: The various September deficits remained awfully high given an economy whose levels are still markedly subdued despite a powerful growth rebound in the third quarter (which ended in September). Yet although these results have been widely interpreted as a stinging rebuke to effectiveness of President Trump’s tariff-centric trade policies (see, e.g., here and here), widely overlooked details reveal major mitigating developments – and resulting reasons for continued encouragement.

As for the awfully high deficits: The combined goods and services trade gap actually decreased on month by 4.73 percent, from a downwardly adjusted $67.04 billion to $63.86 billion. Yet this monthly total (during a troubled economic time) was still firmly in the neighborhood of trade shortfalls during the bubbly mid-2000s, when Washington’s trade policy was about as cluelessly import- and especially China-friendly as possible.

Moreover, back in those days, oil made up a much bigger share of the total goods deficit than today. So obviously, most of the remaining gap owes a good deal to U.S. trade policy decisions – as will be seen below.

Encouragingly, total U.S. exports to a world still largely struggling with virus-related downturns of its own were up 2.55 percent sequentially in September, and registered their best performance ($176.35 billion) since March – just as major pandemic effects were taking hold. Total September imports of $240.22 billion also represented the highest amount ($240.22 billion) since March, but the monthly increase was only 0.51 percent. And where export growth has consistently been strong since May, import growth has begun slowing markedly.

Yet the persistence of high combined goods and services U.S. trade shortfalls stems mainly from problems with services trade that are clearly CCP Virus-related. For example, the longstanding services surplus (which of course includes travel services) is on track for its biggest drop since recessionary 2001. So far, through the first three quarters of 2020, it’s sunk by 20.47 percent on a year-to-date basis.

Indeed, the $43.96 billion reduction in the services surplus has been greater than the $38.54 billion increase in the overall deficit – meaning that if the service surplus had simply remained the same, the total deficit would have declined year-to-date (although still less than expected at least during a normal deep recession).

As indicated above, however, the total trade numbers don’t tell the whole story about the successes or failures of trade policy. That’s because, as known by RealityChek regulars, services are one huge sector where trade agreements and similar decisions have had relatively little impact so far. Ditto for oil

At first glance, examing trade flows that are substantially “Made in Washington” also reveals a nice-sized monthly September reduction in that deficit (4.62 percent), but to a level that’s the third worst on record ($80.74 billion) – just behind the August and July totals, respectively. And on a year-to-date basis, the Made in Washington deficit is up 3.80 percent from last year,to $663.55 billion.

Yet here’s where another detail comes in. This entails the woes of Boeing, which have spread beyond the safety debacle stemming from crashes of its popular 737 Max model to the global virus-induced collapse in air travel.

The safety problems of 2019 cut the longstanding U.S. civilian aircraft trade surplus by nearly 28 percent, or $8.86 billion on a January-September basis. Had the surplus stayed stable, it would have risen only from $600.08 billion during the first three quarters of 2018 to $630.39 billion, rather than $639.25 billion. Given all the import front-running seen throughout 2019 to try to avoid the Trump China tariffs (which artificially inflated the entire non-oil import total), that’s not a bad performance at all.

The aircraft effect has been much more dramatic this year. Year-to-date through September, the Made in Washington deficit is up from that $630.29 billion to $663.55 billion. Yet the nosedive in the aircraft surplus (all the way from $23.16 billion to just under $3 billion) accounts for nearly 83 percent of that increase.

Want another aircraft effect? Check out the manufacturing trade deficit – so rightly the focus of the President’s attention. Month-to-month, it rose by only 1.46 percent. But the new September level of $103.87 billion is the second-worst monthly total of all time – just behind July’s $104.63 billion. Even worse: The aircraft industry’s problems didn’t add to this number, since its trade deficit actually shrunk slightly on month.

But for the entire year so far, the plunge in the aircraft surplus (which, not so coincidentally, has been mirrored by smaller but not trivial reductions in the surpluses of all sorts of aircraft parts, including engines) has made a sizable difference. From January-September, 2019 to this year’s comparable period, the manufacturing trade shortfall has grown by $10.18 billion, from $777.60 billion to $787.78 billion. Take out the $20.16 billion worsening of the aircraft trade surplus, and the $10.18 billion higher year-to-date manufacturing trade deficit becomes a nearly $10 billion lower year-to-date manufacturing trade deficit.

And when it comes to both the manufacturing and overall Made in Washington trade deficits and a virus effect, don’t forget its healthcare goods component. Specifically, the U.S. trade deficit in pharmaceutical preparations jumped by $12.58 billion year-to-date between last year and this year, and in the categories containing (but not restricted to) protective gear like masks and gowns, testing swabs, ventilators, and oxygen tents by another $2.33 billion.

Since China remains so important for Made in Washington and manufacturing trade flows, bilateral exports, imports, and deficits not surprisingly reveal a major pandemic effect, too. The big China difference is how strongly the September data confirm that President Trump’s goals of reducing the bilateral trade gap and decoupling economically from the People’s Republic are being achieved even without taking the CCP Virus into account.

On a monthly basis, the goods trade gap with China dipped fractionally in September, to $29.67 billion. This total represented the second straight such drop and the lowest level since Aprils $28.40 billion. These merchandise imports inched up sequentially in September by just under one percent and have been virtually flat since July, but goods exports improved by 4.53 percent.

On a year-to-date basis, America’s China trade looks like it’s in even better shape. U.S. goods imports from China are off by nearly 11 percent ($37.54 billion) over this stretch, and the trade gap has become 15.24 percent ($40.06 billion) smaller.

This progress, moreover, has been achieved even though total U.S. exports of civilian aircraft and parts (including engines) to China have shrunk by $4.09 billion and the trade deficit in the virus-related medical equipment categories has risen by $1.25 billion. (Oddly, the bilateral pharmaceutical preparations trade balance has improved with the surplus improving from $449 million to $836 million.

When all of these virus-related complications and the inevitably disruptive and therefore initial efficiency-reducing impact of the Trump trade policies are considered, two questions arise that are equally fascinating and important. First, once these temporary shocks pass, will this approach to globalization look more like a win or a loss for the U.S. economy? Second, will American election politics give the nation a chance to find out?

(What’s Left of) Our Economy: Why Trump’s Solid Trade Record Survives the Lousy New U.S. Trade Report

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automotive, Boeing, CCP Virus, cell phones, civilian aircraft, coronavirus, COVID 19, Made in Washington trade deficit, manufacturing, manufacturing trade deficit, non-oil goods deficit, shutdowns, tariffs, trade deficit, trade war, Trump, U.S. International Trade Commission, Wuhan virus, {What's Left of) Our Economy

This is how bad this morning’s official US. trade figures (for July) looked at first glance for folks like me – who value trade deficit reduction, and believe that trade policies like President Trump’s can make a real difference: When I began examining the data, even though I kept telling myself, “It’s only one month’s worth of statistics,” I scarcely knew what to despair about most.

Yet the “at first glance” point matters a lot. Because when you dig into the weeds, you’ll find plenty of evidence making clear that much of the deterioration had nothing to do with trade policy at all. And the evidence comes in two tables in these monthly trade reports on which I usually pass: Exhibit 7 and Exhibit 8. They cover U.S. exports and imports of goods “by End-Use Category and Commodity” and they provide the report’s most detailed picture of which areas of the economy have performed best and worst trade-wise during the month covered.

They’re not as detailed as those available from the U.S. International Trade Commission’s interactive search engine, but that database isn’t yet updated, so let’s go with what we have to begin seeing exactly where the biggest goods trade deficit increases came in July. (Goods trade, also called merchandise trade, makes up the bulk of U.S. trade flows, and it’s relatively unaffected by the policy decisions made by Washington – including by trade-minded Presidents like Donald Trump – mainly because international negotiations to deal with barriers in these sectors are still in pretty early stages)

Again, from the 30,000-foot level, the July results look terrible. The goods trade shortfall hit $80.91 billion – $9.26 billion, or 12.92 percent, higher than the June figure of $71.65 billion (which mercifully was revised down slightly). That increase proportionately is dwarfed by the record 31.60 jump of March, 1993. But that nearly 18-year old all-time high can be disregarded pretty easily, both because the law of small numbers is at work here (i.e., when you’re dealing with small absolute numbers, relatively small absolute changes can result in outsized percentage changes), and because back in those days, U.S. trade flows were heavily affected by oil trade – another sector of the economy rarely subject to trade policy decisions.

So what mainly accounted for that $9.26 billion merchandise import surge? First of all, we know that more than all of it ($9.94 billion) came in non-oil goods trade. As known by RealityChek regulars, those are the trade flows most heavily influenced by U.S. trade policy. So this increase in the “Made in Washington” deficit seems to reflect badly on decisions made in Washington. Drilling down a little deeper, manufacturing emerges as an even bigger culprit. Its $89.15 billion June trade gap ballooned to $104.63 billion in July – a rise of $15.48 billion. Not so incidentally, that manufacturing trade deficit is the worst ever in U.S. history, eclipsing the $101.65 billion recorded for October, 2018.

Nearly as interesting, though: China trade – where the President has been fighting a war – was not the biggest problem, as the manufacturing-dominated goods gap with the People’s Republic rose by just $3.22 billion. And neither the 11.35 percent on-month increase nor the $31.62 billion total goods gap was anywhere close to a record. 

So we’re back to manufacturing, and figuring out where the big deficit widening took place. Here’s where Exibits 7 and 8 matter.

What they tell us is that the monthly worsening of the merchandise trade deficit was highly concentrated in a handful of industries, and that these latest developments either have little or nothing to do with the Trump tariffs, or actually  demonstrate their effectiveness in widely overlooked ways.

Most relevant of all here is the automotive sector. Between June and July, the deficit in vehicles and parts combined increased by just under $3.20 billion. That represents more than a fifth of the sequential worsening of the manufacturing trade deficit, and nearly a third of the difference in the non-oil goods deficit. But the problem says little about the Trump trade policies, and a great deal about the reopening of U.S. automotive sector in late spring and early summer after the CCP Virus led to its almost complete shutdown in March and April.

From May through July, total American automotive production nearly tripled in real terms, according to the Federal Reserve’s industrial production reports. So it’s no surprise that since production in this industry is so globalized, and thus so many of its parts and materials (and the parts of the parts) are still imported, its trade deficit ballooned, too.

Then there are cell phones. Between June and July, the trade deficit here rose by just under $1.44 billion – 9.30 percent of the increase in the manufacturing deficit, and 14.48 percent of the problem in non-oil goods.

The cell phone category in the monthly trade releases also includes “other household goods” – one of the reasons I don’t love these numbers like I love those available from the International Trade Commission. But it’s reasonable to suppose that most of these goods are cell phones, and that most of these are coming from China – with which the Trump administration of course has been fighting a trade war.

As observed on RealityChek last month, however, Mr. Trump decided not to tariff them. So although cell phone imports indicate that the trade war is incomplete, they certainly don’t show that tariffs don’t work. If anything, they underscore what can happen when they’re missing.

A third major source of the deterioration shown in the new trade report is the civilian aircraft industry – where a surplus of $575 million in June became a $1.50 billion deficit in July. That’s a trade balance worsening of nearly $2.08 billion. In other words, this development alone accounts for 13.44 percent of the lousy July manufacturing trade results and 20.93 percent of the woes in non-oil goods trade flows.

Aircraft’s problems, however, have nothing to do with U.S. trade policy, and everything to with Boeing’s safety failures, which have led to big production shutdowns.

Add up the trade performances of these categories, and together they account for fully 43.38 percent of the manufacturing trade deficit’s increase between June and July, and a whopping 67.57 percent of the monthly rise in the non-oil deficit.

Combine these findings with a U.S. economic recovery that so far has been faster than the bouncebacks of many of its leading trade partners (except, notably, for export-heavy China) and the discouraging July trade figures don’t look nearly so discouraging.

Mission accomplished, then, for the Trump administration? Hardly? But the July trade report is far from a conclusive sign of failure, either. In fact, it leaves any fair-minded evaluation of the Trump trade record pretty much where it’s been since the CCP Virus arrived – deserving of solid grades before the bug arrived, and an incomplete during the completely abnormal times we’ve experienced since then.

(What’s Left of) Our Economy: Yes, These New (Pre-CCP Virus) U.S. Trade Figures Really Matter

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Atlanta Fed, Boeing, Census Bureau, China, exports, GDP, gross domestic product, imports, Made in Washington trade deficit, manufacturing, New York Fed, Pacific Rim, real GDP, tariffs, Trade, trade deficit, Trump, {What's Left of) Our Economy

There’s no doubt that the pre-CCP Virus U.S. economic data that still keep coming out (and that will continue coming out for months) has at best strongly limited utility nowadays – with one gigantic caveat. They speak volumes about how the economy was faring before the virus’ invasion, and the message they’re sending is especially important for evaluating the effects of President Trump’s tariff-heavy trade policies.

Specifically, they make abundantly clear that the economy was humming along just (and in many ways, increasingly) fine even though steep Trump levies have remained on literally hundreds of billions of dollar worth of potential goods imports – mainly on products from China and steel and aluminum from numerous countries. So you can take the mountain of claims that these duties would wreck American prosperity and throw them on the trash heap. And new reinforcement for this analysis has appeared this morning in the form of the latest official monthly U.S. trade figures (for February) from the Census Bureau.

First, let’s look at the growth numbers, as reported in terms of a measure called “gross domestic product” (GDP). It gauges the nation’s output of goods and services, and the most closely watched figures are those adjusted for inflation.

There’s no doubt that real growth slowed from the time the first Trump-specific tariffs (on metals) were imposed in March, 2018. That year, after-inflation GDP expanded by a healthy 2.93 percent. But the rate slowed notably during that year, certainly at least coinciding with the impact of the tariffs taking hold. It’s also important to point out that China duties began in mid-year, were increased, and plans for many more were announced. (See the timeline linked immediately above for the specifics). 

Growth slowed in full year, 2019, but just to 2.33 percent – still solid by recent U.S. (meaning post-2008 financial crisis) standards. And the nation was dealing not only with trade war fallout, but the safety problems plaguing aircraft giant Boeing and its vast national supply chain.

We don’t have constant dollar GDP results for the first quarter of this year yet, but two regional branches of the Federal Reserve system try to track growth on a timely, ongoing basis. And the pre-virus grades they both gave the economy were encouraging. According to the Atlanta Fed, first quarter after-inflation growth was proceeding at a better-than-three percent annual pace through late March – even though virus infections and deaths were rising troublingly.

(It’s crucial to note, especially in light of shockingly bad recent virus-era growth – and in fact contraction – estimates from private sector economists, that such annualized figures describe growth rates as if the quarterly results lasted for an entire year. That is, the growth or contraction they describe does not represent actual GDP change for that quarter – and as a result, they shouldn’t be taken to revealing that the increases or decreases that are forecast will take place all at once.)

The New York Fed’s estimates tend to be lower than Atlanta’s, but they still predicted an annualized 2.14 percent inflation-adjusted first quarter growth rate as late as February 28. By March 27, that estimate had fallen to 1.68 percent annualized.

And what’s happened to the U.S. trade deficit for the first two months of 2020 – in other words, the first two-thirds of the first quarter of the year? By the broadest measure, which counts both goods and services, it’s down 18.71 percent year-on-year. (This and the following trade numbers are presented in pre-inflation terms, since such figures dominate the detailed results contained in the monthly trade reports.) Better yet, decline has been accelerating. Between December and January, the total trade gap fell by 6.44 percent – from $48.61 billion to $45.48 billion. From January to February, it sank by another 12.20 percent – nearly twice as fast – to $39.93 billion. (The initially reported January number was revised up slightly today.)

That February figure was the lowest since the $39.92 billion registered in April, 2016 – when the economy was growing only a bit more slowly, but when there were no serious problems facing then-export standout Boeing. Moreover, the February monthly drop was the biggest since March, 2018 (12.34 percent) – just as the first Trump metals tariffs were coming into effect.

As known by RealityChek regulars, the best way to judge how trade policy decisions have affected the trade figures is to look at the data measuring the nation’s trade flows minus oil and services (which have never been greatly affected by trade agreements or tariffs). For the first two months of this year, this Made in Washington trade deficit is off by 9.64 percent in pre-inflation terms. Here, too, the rate of decrease is getting faster, with February’s sequential 7.97 percent plummet the biggest such decrease since the 9.45 percent nosedive that took place in January, 2019 – as the China trade war was peaking in terms of tariff impositions. And the $60.76 billion February total is the lowest for a single month since September, 2017’s $60.65 billion.

Speaking of China, a combination of Beijing’s widespread CCP Virus lockdowns and Trump tariffs brought the February U.S. goods trade gap with the People’s Republic all the way down to $16 billion. That’s the lowest such total since the $15.65 billion recorded in Great Recession-ary March, 2009. And the monthly falloff (38.62 percent) was the biggest since December, 1993’s 39.46 percent. That was more than 26 years ago!

Moreover, even though U.S. merchandise exports to China slipped by 5.55 percent on month, U.S. goods imports from China dropped by 31.45 percent. The actual U.S. export level of $6.82 billion was indeed the lowest since June, 2010’s $6.73 billion. But the import level of $22.81 billion was the lowest monthly total since Great Recession-ary May, 2009’s $22.73 billion. And the sequential import drop was the biggest since the 34.07 percent of April, 1986 – nearly 34 years ago, when the much smaller volumes of U.S.-China trade made big percentage moves much easier to produce.

Also important – even as the China year-to-date goods trade deficit has declined by 28.99 percent, the U.S. goods trade gap with Pacific Rim countries (a grouping that does not include Western Hemisphere countries like America’s U.S.-Mexico-Canada trade agreement partners) is off by 25.30 percent. So say so long to the claim that the Trump tariffs have simply shifted the deficit to other Asian countries.

The news was equally good on the manufacturing trade front. America’s mammoth manufacturing trade deficit shrank on month in February from $81.93 billion to $63.01 billion. The February total is the lowest such figure since February, 2017’s $60.47 billion. Meanwhile, the 23.09 percent monthly drop is the biggest since December, 2012’s 27.11 percent decrease.

Further, the deficit fell for all the right reasons. Despite the continued overall economic growth, U.S. manufacturing imports were off 8.98 percent, to $153.07 billion while exports actually grew – by 4.42 percent, to $90.06 billion.

As a result, the manufacturing trade shortfall is down year-to-date so far as well – by 9.65 percent, from $160.43 billion to $144.94 billion.

(What’s Left of) Our Economy: Why 2019 Was a Winner for Trump Trade Policies & America

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Barack Obama, Boeing, China, GDP, Made in Washington trade deficit, manufacturing, non-oil goods trade deficit, tariffs, Trade, Trade Deficits, Trump, {What's Left of) Our Economy

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.

(What’s Left of) Our Economy: New GDP Data Show a Trade Deficit Being Brought to Heel Under Trump

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Barack Obama, GDP, gross domestic product, Made in Washington trade deficit, real GDP, real trade deficit, trade deficit, Trump, {What's Left of) Our Economy

The fourth quarter (and therefore full-year) 2019 U.S. economic growth statistics are now in, and they’re chock full of results showing that President Trump’s promise to strengthen the American economy in part by reducing the trade deficit is being fulfilled.

To be sure, this conclusion needs several important qualifications. Notably, today’s report on the gross domestic product (GDP) from the Commerce Department is preliminary. It’ll be revised twice in the next two months alone. Further, the trade data the report contains aren’t all shaped by government trade policy decisions alone. For the numbers include the flows of services and oil trade, which are rarely dealt with in trade agreements or similar trade-related measures.

Even so, the new figures entitle the President and his supporters to take at least a slow, or partial, victory lap.

In the first place, the pre-inflation GDP data show that the overall U.S. trade deficit did indeed fall in 2019. The annual decline wasn’t much – 0.97 percent. But it marked the first yearly decrease in this number since 2016’s 0.19 percent. And it looks even better in the proper context – i.e., seen against the backdrop of changes in the GDP themselves.

After all, trade deficits often (but not always) fall for bad reasons – specifically, a shrinkage in America’s output that slashes the economy’s demand for foreign goods and services. That, however, wasn’t the story in 2019. Although the trade gap narrowed slightly, the overall economy expanded by 4.12 percent. That’s considerably faster than in 2016, when growth was only 2.69 percent. And remember – the trade deficit decrease was faster.

When examined after factoring in inflation (the GDP numbers most closely followed by students of the economy), the results don’t endorse the Trump trade approach quite so strongly. But they’re unmistakably encouraging.

In these real terms, the trade deficit rose by 3.72 percent last year (from $920 billion to $954.2 billion). This increase, however, was the slowest annual increase since 2013 (when the gap actually shrank by 6.30 percent). Even better, real economic growth in 2019 still totaled 2.33 percent. In 2013, it was only 1.84 percent.

Those results still don’t look like great news for backers of the President’s trade policy, for they indicate that making significant progress in lowering the trade deficit was at least associated with a very sluggish economy.

Yet if you take a longer view, and recognize that longstanding trends in an economy as gigantic as America’s don’t turn around overnight, the picture looks more encouraging.

The table below shows the relationship in recent years between the annual change in after-inflation (“real”) GDP and the annual change in the real trade deficit. The year 2011 is the chosen baseline because that’s when the current economic recovery settled into a reasonably normal state following the unusually deep dive it took during the Great Recession and the not surprisingly strong rebound it enjoyed during the subsequent expansion’s early stages. Low deficit-growth-to-economic growth ratios identify years during which the constant dollar GDP was able to expand without a major widening of the trade gap, and high ratios reveal the opposite situation. (Negative ratios demonstrate an economy that grew while the trade shortfall actually shrank.)

Another way to think of the matter: When the economy grows faster than or just about as fast as the trade deficit, it’s making progress toward self-sufficiency – a goal that most economists disdain (at best), which that arguably is better for the nation than growth strongly dependent on a still-dangerous and/or slow-growing world. And when the growth of the trade deficit is compared with economic growth, it’s clear that the Trump administration has made major headway on this score.

ama years                      real GDP growth   real trade deficit growth       ratio 

10-11:                              1.55 percent               0.83 percent                 0.54:1

11-12:                              2.25 percent               0.01 percent                 0.04:1

12-13:                              1.84 percent             -6.30 percent                -3.42:1

13-14:                              2.53 percent              8.33 percent                 3.29:1

14-15:                              2.91 percent            25.01 percent                 8.59:1

15-16:                              1.64 percent              8.61 percent                5:25:1

Trump years

16-17:                             2.37 percent              8.43 percent                3.57:1

17-18:                             2.93 percent              8.26 percent               2.82:1

18-19:                             2.33 percent              3.72 percent               1.60:1

Under the Obama administration, for three years, the economy managed to grow in after-inflation terms while the after-inflation trade deficit fell overall. Unfortunately, the growth itself was unimpressive. During its last three years, GDP expanded faster (especially in 2014 and 2015). But the trade deficit rose considerably faster still. So the U.S. economy became more dependent on that dicey world.

During the three full Trump years, the economy’s growth rate has been a bit stronger than under the last three Obama years. But the growth rate of the trade deficit has been a good deal slower. And although the overall economic growth rate has slowed slightly overall between 2017 and 2019, the growth rate of the trade deficit has been more than halved.

Similar trends are apparent from examining a different measure – the real trade deficit as a share of the gross domestic product. As shown by the table below, notable progress was made during the first three Obama years below in reducing both that actual percentage, its growth rate, and the ratio between the economy’s inflation-adjusted growth and the growth of its inflation-adjusted trade shortfall as a share of GDP.

During the next three Obama years, these trends generally shifted into reverse. But although the inflation-adjusted trade deficit as a share of real GDP has continually risen during the first Trump years, its own growth rate has weakened significantly even as growth itself has remained solid and impressive compared with the growth rates of those three final Obama years.

                       real trade deficit/GDP   real GDP   real trade deficit      ratio   

Obama years

2011:                   3.59 percent          1.55 percent     -1.10 percent     -0.71:1

2012:                   3.51 percent          2.25 percent     -2.23 percent     -0.99:1

2013:                   3.23 percent          1.84 percent     -7.98 percent     -4.34:1

2014:                   3.41 percent          2.53 percent      5.57 percent      2.20:1

2015:                   4.15 percent          2.91 percent    21.70 percent      7.46:1

2016:                   4.43 percent          1.64 percent      6.75 percent      4.12:1

Trump years

2017:                  4.69 percent          2.37 percent      5.87 percent      2.48:1

2018:                  4.94 percent          2.93 percent      5.33 percent      1.82:1

2019:                  5.00 percent          2.33 percent      1.21 percent      0.52:1

Unfortunately, we’ll have to wait a few days to judge how the Trump administration has performed in terms of loosening the link between economic growth and that portion of the trade deficit most directly affected by trade policy. I call it the Made in Washington trade deficit, and as stated above, it consists of the total deficit minus trade in services and oil. Here’s how those figures luck (including the inflation-adjusted Made in Washington deficit).

Obama years        real GDP       real Made in Washington deficit      ratio 

10-11:                1.55 percent                 11.92 percent                      7.69:1

11-12:                2.25 percent                 10.23 percent                      4.55:1

12-13:                1.84 percent                   6.15 percent                      3.34:1

13-14:                2.53 percent                 15.85 percent                      6.26:1

14-15:               2.91 percent                  22.70 percent                     7.80:1

15-16:               1.64 percent                    2.54 percent                     1.55:1

Trump years

16-17:              2.37 percent                    6.64 percent                     2.80:1

17-18:              2.93 percent                  13.15 percent                     4.49:1

18-19:              2.33 percent                    4.54 percent*                   1.95:1

*November-to-November

It’s evident from here that the portion of the trade deficit most directly affected by trade policy has grown much slower during the Trump years than during the Obama years, even though Trump growth on average has been somewhat stronger. In fact, during the only two Obama years in which that Made in Washington trade deficit increased nearly as slowly as during any of the Trump years (2013 and 2016) were years in which that growth was weak (less than two percent). Annual economic growth during the Trump years has never sunk to that level, or even close.

So no one should imagine that, even by its own standards, the Trump administration has made nearly enough progress in either reducing the trade deficit, or increasing the economy’s self-sufficiency. But although the numbers themselves say nothing about the value or dangers of greater self-reliance, they make clear that it’s happening, and that much of the progress has taken place where trade policy matters most.

(What’s Left of) Our Economy: New Data Show Continued U.S.-China Decoupling & Broad Trade Performance Improvement

Tags

aircraft, Boeing, China, decoupling, exports, goods trade, imports, Made in Washington trade deficit, manufacturing, merchandise trade, tariffs, Trade, trade war, Trump, {What's Left of) Our Economy

With all the China trade war headlines in the news lately, the release this morning of the latest (for October) monthly U.S. trade data couldn’t be timelier. Indeed, one of the biggest takeaways from the results is that, as has been the case since the conflict began, the decoupling of the American and Chinese economies continues apace.

A second big takeaway: Boeing aircraft’s safety woes remain a major drag on domestic U.S. manufacturing’s trade performance and hence overall production (currently in mild recession) – and one having nothing to do with President Trump’s tariffs or foreign retaliation. 

And a third important conclusion:  Aside from the China trade account, the new report shows considerable improvement in some of the most important trade deficits run by the economy for decades.

One measure if decoupling is the humongous merchandise trade deficit the United States has run with China for so long. As of October, it’s down 14.60 percent year-to-date – even though the U.S. economy keeps growing. And in that vein, America’s overall non-oil goods trade deficit (the best global proxy for U.S.-China trade) rose by 4.04 percent during the same period.

The same trends are visible on the individual export and import sides, too. From January through October of this year, U.S. goods exports to China accounted for 7.13 percent of America’s worldwide total. For the comparable period last year, that figure was 8.22 percent. The analogous merchandise import figures were 19.78 percent and 23.28 percent.

Other highlights of the new monthly trade report:

>The combined goods and services trade deficit fell 7.63 percent sequentially in October, from a downwardly adjusted $51.10 billion to $47.20 billion. The October total is the lowest since May, 2018’s $44.35 billion. And the monthly drop was the biggest since January’s 12.61 percent.

>The downgrade of the September overall trade deficit was an unusually large 2.57 percent.

>The combined goods and services trade deficit is now running just 1.35 percent ahead of last year’s level. That’s a much slower rate of increase than the 13.89 percent rise between the two previous January-through-October periods.

>The overall trade deficit’s slower year-to-date increase was mainly the result of a dramatic decrease in the U.S. petroleum trade deficit – from $46.97 billion in the first ten months of 2018 to $13.93 billion between January and October of this year. That 70.34 percent nosedive contrasts with the aforementioned 4.04 percent increase in America’s non-oil goods trade deficit.

>At the same time, this “Made in Washington trade deficit” (so called because oil and services trade have little to do with the terms of U.S. trade agreements and other trade policy decisions) has been rising at a considerably slower pace this year (the aforementioned 4.04 percent rate) compared with last – when the January-through-October increase was 12.74 percent.

>Total U.S. exports dipped by 0.21 percent in October, from $207.55 billion to 207.12 billion – their lowest level since April’s $206.87 billion.

>Total U.S. exports are down 0.04 percent year-to-date – compared with a 7.45 percent rise between the preceding January-through-October period.

>”Made in Washington” exports are down 1.35 percent year-to-date, with October’s monthly $119.96 billion total the lowest since October, 2017’s $118.19 billion. Between the first ten months of 2017 and the first ten months of 2018, they grew by 5.98 percent.

>”Made in Washington” imports are up 0.55 percent year-to-date, with October’s monthly $187.54 billion total the lowest since November, 2017’s $186.99 billion. Between the first ten months of 2017 and the first ten months of 2018, they climbed by a much faster 8.26 percent.

>The also chronic and huge U.S. manufacturing trade deficit rose by 5.45 percent between September and October – from $87.91 billion to $92.70 billion. The increase followed two straight sequential declines.

>Manufactures exports in October improved by 5.03 percent, from $91.84 billion to $96.45 billion. But the much larger amount of manufactures imports increased by a faster 5.23 percent, from $179.75 billion to $189.15 billion.

>Year-to-date, the manufacturing trade deficit is up 2.76 percent, from $847.21 billion to $870.62 billion. That’s a much slower rate of increase than the 11.26 percent rise between January-through-October, 2017 and the same 2018 period.

>Interestingly, the safety woes of longtime manufacturing export superstar didn’t weigh heavily on the industry’s latest trade figures. Exports of civilian aircraft actually edged up sequentially in October – from $3.29 billion to $3.33 billion. Imports rose more, from $1.35 to $1.60 billion, but the result contributed only $210 million to the $4.79 billion monthly rise in the total manufacturing trade deficit.

>Longer term, though, it’s a much different story. For the first ten months of this year, civilian aircraft exports have decreased from $46.03 billion to $37.21 billion. Import, however, are up from $10.06 billion to 12.16 billion.

>As a result, the civilian aircraft trade surplus is down on a year-to-date basis from $35.97 billion to $27.15 billion. And this $8.82 billion drop-off represents 37.68 percent of the $23.41 billion worsening of the overall manufacturing trade balance so far from 2018 to 2019. Moreover, it’s a far cry from the days when the civilian aircraft sector was strengthening the U.S. manufacturing trade balance.

It’s true that when examining the improvement of trade performance on an absolute or relative basis, the economy’s growth rate has to be taken into account. In this vein, though, the rates of improvement are all significantly faster than the slowdown being experienced by the wider economy. That development doesn’t lend itself to pithy headlines (or catchy campaign slogans). But by any reasonable standard, it’s solid progress.

(What’s Left of) Our Economy: New U.S. Trade Figures Reflect More Policy Noise, but Reveal More Underlying Improvement

Tags

China, exports, imports, Made in Washington trade deficit, manufacturing, non-oil goods deficit, tariffs, Trade, Trade Deficits, Trump, {What's Left of) Our Economy

As with last month’s numbers, this morning’s U.S. trade figures need to be taken with a big grain (or boulder?) of salt due to President Trump’s on-again, off-again tariff decisions with major foreign economies like Mexico and especially China. The big takeaway, IMO: These May data show that the portion of the nation’s trade deficit most affected by trade policy decisions is still growing much more slowly this year than it did last year – even though the pace of overall U.S. economic growth looks to be just slightly weaker. And that’s clearly good news if you share my belief that humongous and ballooning trade deficits are bad news for the economy.

Specifically, I’m talking about the non-oil goods trade deficit – the shortfall which strips out oil (which is rarely dealt with by trade policymakers anywhere) and services (where liberalization remains in its infancy). 

On a monthly basis, this trade gap (which I like to call the Made in Washington trade deficit) jumped by 3.02 percent in May – the biggest such rise since last December’s 9.07 percent, when importers were “front-running” – that is, scrambling to bring in foreign product ahead of threatened and imminent tariffs. And its $70.85 billion level was the highest since December’s $78.06 billion.

But for the first five months of this year, this deficit is up just 6.76 percent – much less than the 11.14 percent increase registered between January and May last year. And although the second quarter’s economic growth figures aren’t yet in, the gross domestic product (GDP) for the first half of this year seems set to expand at a rate that’s eminently respectable compared with last year’s first half.

In addition, the May figures show that the United States continues making progress in reducing its chronic and huge goods trade deficit with China – a major Trump goal.

As with the non-oil goods deficit overall, the U.S. merchandise shortfall with China grew sequentially in May – by 12.24 percent. The increase was the biggest in percentage terms since the 20.64 percent monthly surge last May, during the tariffs front-running period.

U.S. goods exports to the People’s Republic were up fully 14.92 percent on month in May – their best such performance since February’s 18.21 percent improvement. Yet the much larger amount of goods imports from China shot up by 12.85 percent – the biggest such increase since last May’s 14.78 percent.

Interestingly, though, given the seasonal factors that shape so much trade with China, this month’s May U.S. merchandise trade deficit with China was the lowest May total since 2016 – when overall American growth was much slower.

On the manufacturing trade front, another major Trump priority, the longstanding and huge monthly deficit climbed by 6.08 percent sequentially in May – from $86.78 billion to $92.06 billion. The May level is also the highest since January’s $89.13 billion.

On month, May manufacturing exports advanced by 5.30 percent, from $92.62 billion to $97.53 billion. But the much larger amount of imports increased by 5.67 percent, from $179.41 billion to $189.59 billion.

These new figures brought the year-to-date manufacturing trade deficit up to $416.23 billion in May – 5.28 percent higher than last year’s comparable total ($395.36 billion). Manufactures exports are actually down 1.93 percent this year so far while imports are up 1.33 percent.

Overall, the combined U.S. goods and services trade deficit widened by 8.39 percent on month in May – from an upwardly revised $51.22 billion to $55.52 billion. The May level was the highest and the sequential rise were both the highest since December ($60.81 billion and 13.35 percent, respectively).

On a January-May basis, the total trade deficit has worsened by 6.38 percent – a somewhat slower rate than the previous year’s 7.70 percent.

Total exports in May increased by 2.05 percent – their biggest such increase since last May’s 2.13 percent. But this improvement followed April’s 2.37 percent sequential decline – the worst such performance since January, 2016’s 2.66 percent.

Total imports, though, soared by 3.31 percent sequentially in May – from $257.64 billion to $266.16 billion. That total is the third highest ever (after last October’s $266.82 billion and last December’s $266.47 billion – during the tariffs front-running period). The monthly increase was the biggest since March, 2015’s 6.69 percent. But it also followed s big April monthly fall-off – 2.16 percent, the greatest since January’s 2.40 percent.

(What’s Left of) Our Economy: Through the Policy Noise, More Evidence of Trade Progress Under Trump

Tags

China, exports, imports, Made in Washington trade deficit, manufacturing, real non-oil goods trade deficit, tariffs, Trade, trade deficit, Trump, {What's Left of) Our Economy

Today’s new monthly U.S. trade figures (for April) from the U.S. Census Bureau come at an awkward time statistically speaking. As must be obvious, they predate President Trump’s latest escalation trade war escalations. They’ve been shaped significantly by the safety-related problems at the Boeing Co., long a major American export standout, which may or may not be solved relatively quickly. To make matters more complicated, they incorporate revisions – some of which go back to 2014.

All the same, the trade report contained some data worth noting.

Regarding the macro numbers, the combined U.S. goods and services trade deficit shrank by 2.15 percent on month in April, from an upwardly revised $51.91 billion to $50.79 billion. That’s the second lowest monthly total of this still-young year and, more important, the second lowest total (after February’s $50.03 billion) since June, 2018’s $47.43 billion.

And, in an unusual (literal) footnote, March’s figure was revised up by a substantial 3.81 percent.

Total U.S. exports fell by 2.16 percent on month in April, to $206.85 billion. That’s the biggest percentage sequential decrease since January, 2015’s 2.66 percent. And the April total was the lowest since last December’s $205.66 billion.

Total American imports, though, fell at the same 2.16 percent rate – but the decline was only the fastest since January’s 2.40 percent. The $257.64 billion total import figure was the nation’s lowest since April, 2018’s $257.10 billion.

Year-to-date, the overall trade deficit is 2.02 percent higher than in 2018, although overall economic growth is a little slower.

As known by RealityChek regulars, more insights on how Mr. Trump’s trade policies can be gleaned from examining the “Made in Washington trade deficit” – comprised of U.S. trade flows strongly influenced by trade policy decisions. Such figures strip out oil trade, which is rarely dealt with by trade policy makers, and trade services, where liberalization has still made only modest progress worldwide.

In inflation-adjusted terms (the figures that are used to help calculate overall American economic growth or contraction), this non-oil goods deficit dipped by 0.14 percent month-to-month in April. More revealing, so far in 2019 it’s up 6.13 percent. That sounds like an indictment of the Trump trade record.

But 2018’s comparable figure was 12.71 percent. So even though the economy’s growth changed little, the growth rate of the Made in Washington trade deficit plunged by more than 50 percent – unmistakably good news for anyone wanting the economy to rely less for growth on borrowing and consuming, and more on saving and producing.

The U.S. goods trade shortfall with China shot up 29.66 percent on month in April – which looks like a setback for the President’s trade policy. The more so since the jump was the biggest since the 37.01 percent surge of March, 2015.

All the same, this increase followed the biggest two-month plunge in this trade deficit (39.80 percent) since October-December, 2001 (39.87 percent). In addition, despite the tariff policy gyrations on both sides, the impact of seasonal factors on U.S.-China goods trade can still be detected, as bilateral commerce tends to wane temporarily after big Christmas holiday-related buildups.

Moreover, the China goods deficit through the first four months of 2019 is down 9.88% from the comparable 2018 period – even though the overall goods deficit year-to-date is up 0.33%.

The April widening of the China goods gap was led by a 24.27 percent monthly nosedive in American goods sales to the People’s Republic. This biggest such drop since January, 2018’s 27.35 percent surely represents one sign of the Boeing effect. Although country-specific data aren’t yet available, overall civilian aircraft overseas sales plummeted by 46.89 percent sequentially in April (or just under $2.30 billion in absolute terms).

Goods imports from China rose on month for the first time in six months – by 11.62 percent, to $34.80 billion. This increase was the biggest since May, 2018’s 14.78 percent, by which time tariffs front-running was clearly underway.

The Boeing effect can also be seen in the April manufacturing trade figures. The monthly deficit – which due to trade war factors has been volatile lately – increased sequentially by 12.76 percent, from $76.96 billion to $86.78 billion.

Exports slumped by 9.81 percent month-to-month – or $10.07 billion – with nearly a quarter of the decline due to aircraft.

The much larger amount of manufactures imports was down, too, sequentially in April, but by only 0.14 percent.

Year-to-date, the manufacturing trade deficit stands at $324.17 billion – 4.11 percent higher than the comparable 2018 figure. January-through-April exports are 1.18 percent lower than in the first four months of last year, while imports are 1.21 percent higher.

(What’s Left of) Our Economy: New Trade Data Confirm that U.S. Growth Keeps Getting Healthier Under Trump

Tags

GDP, gross domestic product, Made in Washington trade deficit, non-oil goods trade deficit, real GDP, real growth, Trade, trade deficit, Trump, {What's Left of) Our Economy

This morning’s monthly U.S. trade figures (for March) enable an update for the economic impact of President Trump’s tariff-centric trade policies – and contain very good news both for Mr. Trump and for anyone hoping that the nation’s growth becomes healthier (which should be all Americans).

The major test, as RealityChek regulars know, is a comparison between the economy’s overall growth on the one hand, and the growth of the trade shortfall most heavily influenced by trade policies. The latter can be termed the “Made in Washington trade deficit,” since it strips out oil (which is rarely the object of trade deals or trade policy decisions) and services (where trade liberalization has made only limited progress).

If the economy is growing faster than this non-oil goods deficit (in inflation-adjusted terms – the gauge most closely followed by economy watchers), or if its growth rate is still slower but the gap between these rates is narrowing, that means that its expansion is at least starting to stem more from domestic production, and less from import-led (and therefore debt-financed) consumption. If the trends are showing the opposite results, then overall growth is becoming still more heavily reliant on credit-financed shopping (whether by households, businesses, governments or some combination of these).

And in case you forgot, that’s the kind of growth that led directly to the last global financial crisis and the worst American recession since the Great Depression. And even though the economy began recovering a decade ago, its expansion consistently trailed the growth rate of the Made in Washington trade deficit – and never more than when the inflation-adjusted gross domestic product was increasing most robustly.

That’s why the new U.S. trade figures are so encouraging. They confirm that the American economy recently has been able to grow impressively without supercharged Made in Washington trade deficits. In fact, that’s way understating the case. For calculations based on the March trade results show that, during the first quarter of this year, the after-inflation Made in Washington trade deficit actually shrunk sequentially (by a 6.09 percent annual rate) while real gross domestic product increased by a healthy 3.13 percent annualized.

Nor was the first quarter a fluke – at least not under the Trump administration. In the second quarter of 2018, the real Made in Washington trade shortfall sank sequentially by 5.90 percent annualized, while the overall economy surged by a price-adjusted 4.10 percent.

And an examination of the two during the current economic recovery produces an unmistakable pattern, which is best illustrated by looking at the far-right column (think of it as the multiple) of the table below: During the Trump years so far, good growth has resulted despite relatively modest increases (and, as we’ve just seen, despite some absolute declines) in the Made in Washington trade deficit. During the Obama years, Trump-like growth was only achieved when the Made in Washington trade deficit practically exploded. And when that trade deficit grew weakly, so did the gross domestic product.

Further, even though the multiple rose between the first and second years of the Trump administration, the quarterly 2018 figures show that this problem stemmed from the tariff front-running of the third quarter – when U.S. importers were scrambling to bring in products from abroad before they were hit with levies, principally on goods from China. Once this period of distortion ended, the multiple fell significantly (and probably overshot in the first quarter of this year).

Real Made in Washington trade deficit        Real GDP         Ratio of first to second

1Q 2019:              -6.09 percent                   3.13 percent                 -1.95:1

4Q 2018:               6.41 percent                   2.15 percent                  2.98:1

3Q 2018:             11.66 percent                   3.31 percent                  3.52:1

2Q 2018:             -5.90 percent                    4.10 percent                -1.44:1

1Q 2018:              1.35 percent                    2.20 percent                 0.61:1

2018:                  12.74 percent                    2.86 percent                 4.45:1

2017:                    6.75 percent                    2.22 percent                 3.04:1

2016:                    2.66 percent                    1.57 percent                 1.69:1

2015:                  22.63 percent                    2.88 percent                 7.86:1

2014:                  15.88 percent                    2.45 percent                 6.48:1

2013:                    6.15 percent                    1.84 percent                 3.34:1

2012:                 10.23 percent                     2.25 percent                 4.57:1

2011:                 11.92 percent                     1.55 percent                 7.69:1

2010:                30.71 percent                      2.56 percent              12.00:1

Another way to compare the Obama and Trump years in this respect: As previously noted on RealityChek, the constant dollar 3.21 percent GDP growth registered between the first quarter of 2018 and the first quarter of 2019 was the best such four-quarter growth stretch since the second quarter of 2014 and the second quarter of 2015 (when real growth was 3.37 percent).

Yet during that Obama high growth period, the real Made in Washington trade deficit shot up by 18.83 percent. During the Trump high growth period, this trade shortfall rose by only 4.99 percent.

The higher and broader tariffs on China threatened by the President to press Beijing in the current trade talks would represent the biggest test yet of the Trump policies’ impact on the health of America’s growth. But the March trade figures are the latest evidence that so far, they’ve passed such tests with flying colors.

(What’s Left of) Our Economy: The Latest Sign of Trump Success on Trade

Tags

exports, GDP, gross domestic product, imports, inflation-adjusted growth, Made in Washington trade deficit, non-oil goods trade deficit, real exports, real GDP, real growth, real imports, real non-oil goods trade deficit, real trade deficit, tariffs, Trade, trade deficit, Trump, {What's Left of) Our Economy

It’s still not possible to say confidently that the impact of tariff-related distortions are over (at least for the foreseeable future), and that President Trump’s trade policies are once again enabling the U.S. economy to grow strongly faster than its debt-producing trade deficits (i.e., more healthily and sustainably). That moment won’t arrive until May 9, when the last of the monthly trade figures for the first quarter of this year will be reported (at least in a preliminary form).

But Friday’s initial first quarter results for the gross domestic product (GDP – the main measure of the economy’s size and its growth), bring the moment a good deal closer.

Just to recap the main issue: I’ve explained on RealityChek (e.g., here) and elsewhere (e.g., here) that the real measure of Mr. Trump’s trade policy success or failure isn’t the level of U.S. trade deficits presented in isolation. It’s whether the economy can grow at adequate rates without pulling in ever more imports – which are both bought by consumers and used by producers as parts, components, and materials for their final products. Either way, though, their increases on net plunge America deeper and deeper into debt.

With anything as big as the American economy, trends don’t reverse themselves quickly. So the best evidence of change would indicate that the relevant arc is starting to bend in the right direction. In this case, that means signs that growth becomes or remains adequate as the growth of the trade deficit slows. That’s exactly the story that could be told convincingly with some of the latest releases of trade-related numbers (see, e.g., here and here), and that the new first quarter GDP results strengthened further.

First, it’s important to note that the new advance data show that, after adjusting for inflation, as of the first quarter, the U.S. economy grew at its fastest pace over a four-quarter period (3.21 percent) since the second quarter, 2014-second quarter, 2015 period (3.37 percent).

But the first sign that the new growth has been healthier growth emerges when the change in the real trade deficit is examined. During that previous, somewhat faster, growth period, the price-adjusted trade gap widened by 21.55 percent. During the last growth period, which was only slightly slower, the trade deficit actually shrank slightly – by 0.34 percent.

As known by RealityChek regulars, though, changes in the overall real trade deficit have only limited utility for judging the usefulness of American trade policy because the total flows include oil and services trade. The first is rarely the subject of trade diplomacy or policy-making, and liberalization of the latter has made only embryonic progress so far.

The portion of the trade shortfall most heavily influenced by trade policy decisions is that in non-oil goods – what I’ve called the Made in Washington trade deficit. Unfortunately, exact comparisons between the 2014-15 and 2018-19 growth periods can’t yet be made because even the preliminary results for the first quarter of this year won’t be published until the March trade data are released on May 9.

But between the second quarter of 2014 and the second quarter of 2015, the Made in Washington trade deficit jumped by 18.83 percent. Between the first two months of 2018 and the first two months of 2019, it increased by only 3.17 percent. And because of the fading of the tariff front-running effect (described in this post), it’s highly unlikely that the March and full first quarter numbers will change this arc significantly.

The improving trade deficit and its contribution to healthier economic performance also can be seen by examining the contribution made by that better balance to quarterly growth. In the first quarter of 2019, the 5.90 percent sequential shrinkage of the trade gap was responsible for 1.03 percentage points of the 3.13 percent annualized sequential growth. That’s 32.91 percent of the total – and the highest such figure since the fourth quarter of 2013, when the trade deficit’s decrease fueled 1.23 percent points of the 3.19 percent annualized sequential growth (38.56 percent).

Some other trade-related highlights of the new GDP report:

>Combined goods and services exports in the first quarter hit a new record of $2.5765 trillion at an annual rate.

>Real goods exports were up, too, quarter-to-quarter. But their $1.7598 trillion annualized first quarter total was only the second all-time highest (after the $1.8092 trillion in the second quarter of 2018).

>After-inflation services exports represented a fifth straight quarterly record ($783.2 billion annualized).

>Constant dollar total imports in the first quarter fell on-quarter but they still represented the third highest total on record – $3.4758 trillion at an annual rate.

>After-inflation goods imports also fell sequentially to their third highest all-time level – $2.9131 trillion.

>Real services imports dropped quarter-to-quarter to their second highest all-time level – $563.3 billion.