The Trade Deficit Is Nearly 15% of GDP (“Alternatively Defined”)!

If we count only the import side and not the export side of re-exports, as some in the Administration have suggested, we might as well go “whole hog” and redefine the trade balance completely: Let’s count imports, but not exports.

Figure 1: The trade balance defined as net exports/GDP (blue), and the trade balance excluding exports (red). Source: GDP advance release for 2016Q4, and author’s calculations.

One must admit that the Trump Administration has been breathtakingly fast in infecting the public discourse with “alternative facts”. Nonetheless, I did not expect the Administration to so rapidly try to overturn the economic statistical gathering apparatus. From The Hill:

the leading idea is to count “re-exports” — goods that are imported to the U.S., and then exported to a third country unchanged — as imports, but not exports.

To quote Bill McBride at Calculated Risk: “Crazy”.

Imagine what real GDP growth looks like if we incorporate imports, but not exports. It’d be “a mess”! (Update 9pm: if we didn’t count those “fake” exports, “alternative” GDP would 1.9 trillion less than reported (Ch.2009$ SAAR)!)

Personal Note: Nearly a year ago, I was offered the opportunity to work on secondment to the USG for at least a year (extending into the new administration). It could have been a rewarding experience, but the potential prospect of having to work for people who would even countenance distorting the data in this way makes me glad that I didn’t take the post. Every day, I feel for the career staff that are being told to write “up” is “down”, and “left” is “right”.

9 thoughts on “The Trade Deficit Is Nearly 15% of GDP (“Alternatively Defined”)!

  1. Ben Arownd

    Apparently this “technique” has been lurking on the fringes for at least two years if not longer:

    Some have criticized this approach as asymmetric. Well why not also exclude the exports that lead to reimports? The deficit would be even larger but at least some notion of symmetry would be maintained!

    It’s my understanding that this group is also not a big fan of trade in value added (TiVA) statistics because this measure shows much smaller bilateral deficits with certain countries.

  2. Joseph

    As Kevin Drum suggested, next up is a plan to track employment by counting new hires but not counting layoffs.

    This also shouldn’t be a surprise. When Trump completed his FEC financial disclosure form he reported over $500 million in “income” which turns out to actually be gross revenue without counting expenses. Hey, imports without exports isn’t such a stretch after all. Anything to further the myth.

  3. dwb

    So right and so wrong at the same time. When MLW comes home and relates an excessively dramatic encounter full of one-sided statistics, responding with “it’s not that bad they did x,y,z” does not work. In fact, being dismissive typically yields “you are not listening” or “you don’t understand”, followed by her folding her arms and ending the conversation. “It’s not that bad” (or worse “you are making that up”, or even worse “you’re crazy”) is a trap every newlywed male falls into.

    The trade deficit, I am sure, is less bad than Trump supporters claim. Nevertheless, he’s made an emotional appeal. Moreover, the evidence suggests that trade shocks to employment are worse and more persistent than we’ve previously thought.

    People who fall into the dismissive “It’s not that bad” trap are going to find the same reaction. It works with other people who have already been persuaded, but it rarely works with the very people one needs to persuade. One of the reasons the polls were so wrong is that people just fold their arms and cease talking. One of the reasons people do that is that they are tired of being told “It’s not that bad” or that they are crazy.

    Persistent trade deficits may not be as bad as Trumpists say, but they are in fact harmful (particularly when inflation and growth are low, and U-6 still high). I expect economists to be sleeping on the couch for at least 4 years of the Trump administration (I expect there to be 8). The ones who make it off the couch will be the ones that realize that people concerned about persistent trade deficits might have a valid point (even if they tend to exaggerate it.

      1. dwb

        Convince people of what ? “The trade deficit is not as bad as Trumpsts say it is” is not really a persuasive argument. It’s like telling my wife she is not as fat as she thinks she is, by citing her BMI. “Look honey, it’s only a 35, not a 40. ”

        It is honestly unbelievable to me how many smart people take the bait and fall into this rhetorical trap. Every. Single. Time.

        Trump (like all partisans) is going to inflate statistics to create a sales pitch for a lot of policy changes. Don’t need a PhD to know that. This is as shocking as the sun rising in the East or a used car salesman hiding the repair history (i.e. not). People, especially academic economists, need to stop taking the bait.

        It is not enough to be against stuff coming out of the Trump administration. People need to move on, recognize the problems the administration is trying to solve (i.e. persistent trade deficits), and offer something more palatable. Otherwise, the administration’s ideas are the only ones out there and that’s what we will get.

        People will not look back at Trump’s overstated case and think he lied. They will look back and think he got something done.

  4. The Arthurian

    It sure looks wrong to count imports and not exports. But my exposure to the idea has been pretty much all one-sided so far. So I’m jumping to no conclusions just yet.

    Meanwhile, FRED already offers Openness at Current Prices for United States (OPENCPUSA156NUPN) which runs about double the “Alternative” trade balance you show.

    I do think that showing “net exports” as a percent of GDP is highly deceptive. Our reliance on imports is far greater than I always thought.

    1. Menzie Chinn Post author

      Arthurian: I really have no idea what you intend by citing the openness indicator — which is merely the sum of exports and imports divided by GDP. It is therefore no wonder that it runs about twice the size of my “alternative” indicator, which is just imports…

  5. rjs

    you’ve nailed down why it’s unlikely to happen…if they count re-exports as imports, but not exports, it would be a big hit to GDP…they’d never get their 4% growth rate with that…

  6. Erik Poole

    Commercial trade deficit angst is so ….. populist. So silly. I suppose balance of payments and related issues are just too bloody complicated.

    People could or perhaps should focus on real per capita income and real per capita wealth measures. No, don’t bother. Those concepts and measures are too complicated for the average citizen in this day of celebrity narcissism and superficial narcissistic position politics.

    End of rant.

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