The U.S. Census Bureau and the U.S. Bureau of Economic Analysis announced earlier this week that that America’s goods and services deficit was $63.9 billion in September, down $3.2 billion from $67.0 billion in August.
For simplicity, any country’s trade deficit is a measurement of the difference in value between its exports and imports. If a country imports more than it exports, it has a trade deficit.
Monthly economic indicators are simply a snapshot in time; watching the trend is a better way to know the full picture. And the picture emerging is this: over the past couple years the total U.S. trade deficit has begun to fall. It was $580-billion in 2018 and fell to $577 last year.
While these decreases are relatively minor in the grand scheme of economic data, U.S. policy-makers are watching them closely, especially country by country (read: China). In fact, for the foreseeable future, people will watch trade balance data like never before.
That is because for many, the trade deficit has become a litmus test of whether a country’s global trade is fair or not. The Trump administration has used trade deficit data to maximum political advantage arguing simply that U.S. trade policies have been flawed because its trade deficits are so high.
And the numbers make this point clearly. Whether it’s China, Japan, Mexico or Europe, the U.S. is running trade deficits – some very high. However, again, they are falling.
For example, the U.S. goods trade deficit with China was $345 billion last year, an 18 per cent decrease from the previous year. The Trump administration has pointed to this data as proof its ‘tough-on-trade’ policies are working. Trade experts and economists point out trade balance data is only one part of the equation. For example, in manufacturing, inputs travel back and forth across borders as finished goods are made. The auto industry is a good example of just how integrated supply chains can be in multiple countries, therefore why import and export data doesn’t tell the whole story.
Another point many economists make is that the U.S. economy has grown – even boomed – while it ran significant trade deficits. Indeed, the U.S. has run trade deficits consistently for over 40 years mainly due to its heavily reliance on importing oil and consumer goods. This is proof they say that a trade deficit in and of itself is not a bad thing.
Yet in recent years, ‘trade deficit’ has become a toxic term to many in the U.S. and elsewhere alongside ‘globalization’ ‘off shoring’ and other words that describe actions many believe have contributed to the hollowing out of what once was the industrial heartland of America, now simply called the Rust Belt.
That’s why in the age of sound bites, character limits and information overload, a trade deficit is a simple statistic that’s easy to understand. And people generally agree, economists and deeper dives be damned, that if you’re importing more than you’re exporting something’s wrong.
That is why just as people understand budget deficits (spending more than you generate in revenues) the trade deficit stat is here to stay and will be used by politicians whenever to suit their narrative.