The Trade Balance: Macro Dominates Tariffs
Like I said four years ago. By Trump’s own criterion, the trade war was lost. My view – that was a stupid criterion in any case.
(Click on image to enlarge)
Figure 1: Annualized trade balance (billions $, SAAR) (blue, left scale), and trade balance to (interpolated) GDP ratio (red, right scale). Orange shading denotes the Trump administration. Source: BEA, and author’s calculations.
Even if one takes Mr. Trump’s quasi-Marxian view that only goods matter in the trade balance, one finds a similar pattern.
(Click on image to enlarge)
Figure 2: Annualized merchandise trade balance (billions $, SAAR) (blue, left scale), and merchandise trade balance to (interpolated) GDP ratio (red, right scale). Orange shading denotes the Trump administration. Source: BEA, and author’s calculations.
I expect further increase in the trade deficit, given the greater fiscal impulse in the US relative to our trading partners, and a still elevated dollar value (relative to 2014).
Disclosure: None.