2017-03-07 12:17:05
Global Balance: The Huge January Trade Deficit Shows Trump’s Hard Job Ahead

President Trump believes that the United States’ persistent trade deficit is a scourge that must be eliminated. But new data Tuesday shows just how the real costs and benefits of trade are much more complex — and how reducing the trade deficit, if not done right, could leave Americans worse off.

What really matters is not whether the trade deficit is rising or falling. What matters is why.

The trade deficit rose 9.6 percent in January, to the highest level since 2012 (though it remains lower as a share of the total economy). It’s in the details of that $48.5 billion gap between what the United States exported and what it imported, though, that you see why the economy is more complex than the “trade deficits are bad” framing of the Trump administration.

Picking apart the January numbers, you see just how that way of looking at trade can be misleading. The challenge for the Trump administration, if it sticks to its guns of reducing the trade deficit as economic goal No. 1, will be to do so by focusing on what really matters for Americans’ standards of living. The trade deficit fell a great deal during the 2008 recession, for example. No one would argue it made Americans (or pretty much anyone else) better off.

The United States actually exported 0.9 percent more goods in January than it did in December (the numbers are adjusted for the usual seasonal variations). If your concern is that other countries haven’t been buying enough goods made in U.S. factories, the January numbers pointed in a positive direction. The United States exported $1.3 billion more in automobiles and $2.1 billion more in industrial supplies in January than it did in December.

The details show the economic idea of specialization at work. The $1.3 billion rise in automotive exports were paired with a $900 million rise in automotive imports. The overall balance didn’t shift much, but that suggests that the United States is shipping abroad cars and trucks that it makes more efficiently while importing those that others make more efficiently.

The reason the trade deficit rose is that imports rose faster than exports. But even that isn’t entirely a negative.

Imports of consumer goods rose by $2.4 billion in January, with a particularly strong rise in imported cellphones. That reflects the relative strength of the U.S. economy. American consumers have rising incomes, and inevitably they spend part of that income on imported goods.

In effect, the higher trade deficit in January is in significant part caused by U.S. economic strength. It is the inverse of what happened during the 2008 recession. Buying more imported consumer goods because you are making more money is generally a good thing, not a bad thing.

Some exports of products were down in a few sectors where the United States has important competitive advantages.

Exports of civilian aircraft — think Boeing jets sold across the globe — fell by $611 million, and shipments of other high-tech capital goods like aircraft engines and telecommunications equipment were also down.

Such sectors tend to be volatile, so these may turn out to be blips. But if global demand softens for these products made by skilled workers with advanced technology, it would be bad news for Americans.

Meanwhile, a persistent strength of the U.S. economy has been in services, but the balance of trade in services worsened by $5.3 billion.

This may reflect a rise in the value of the dollar. For example, when travelers from abroad visit the United States and spend money at hotels and restaurants, that counts as a services export. That number fell by $89 million in January. It is worth watching in the future whether that falls further, as it might should the dollar keep rising and the Trump administration’s ban on travel from several countries dissuade would-be travelers.

Given the vast numbers of American jobs tied to the service industries, it would be bad news if that trend continued.

A big piece in the rise in imports was crude oil and other petroleum products. They were up by a combined $2.2 billion. (Exports of those products also rose, by $1.2 billion, but combined that means oil contributed to the widening of the trade deficit).

But that seems less worrisome if you know that the price of crude oil rose 9 percent from the start of December until the start of January.

A rise in the price of oil or any other commodity benefits its producers and costs its consumers. It will affect, over time, patterns of imports and exports of that product. But when the trade deficits rises or falls because of those shifts, it’s not really because of trade per se, but because of underlying shifts in supply and demand for the commodity in question.

Put it all together, and while the January trade report has some weak spots and areas for concern, it is not nearly the unabashed bad news that a simplistic reading of the trade deficit would suggest.

The trade deficit is important. But using it as a simplistic scorecard doesn’t tell the full story.