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.

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