Read the Fine Print

One issue that will surely come up in the election campaign this year is whether the president’s trade policy is working. He will, of course, say it is, and his opponent, whoever that is, will, of course, say it is not. U.S. presidential campaigns being what they are, this will very likely be a fact-free debate, but that does not mean we cannot try to shed a bit of light on it, even at this early stage.

The debate begins with deciding what constitutes success, and there will be disagreements even on that. The president will define it as a lower trade deficit and will point to cases where that has happened and where U.S. exports have increased, if he can find any. His opponent will ignore the weedy argument about what a trade deficit really means and whether it matters and will focus on the collateral damage protectionist policies have caused. If they’re smart, they won’t deny the “good” news (a smaller deficit) but will instead net it out against the bad news (jobs lost and people hurt by the tariffs) and argue that the latter is far larger than the former.

If the Democrats are really on their toes, they will also argue that the news of lower deficits is not as good as it sounds, and there they will have some ammunition. It is too early for full-year data for 2019, but the first 11 months show a slight decline in the overall goods and services deficit of $3.9 billion, or about 0.7 percent, compared to 2018. (Note that all data referenced in this piece are from the U.S. Census Bureau USA Trade Online database.) This is not a big change, but it is moving in the direction the president wants, and in the likely event it will be sustained through December, it will give him something to brag about.

However, a look at the fine print shows a more complicated picture. First, the main reason the deficit has declined is due to changes in oil trade. Thanks to the shale oil boom, the United States has now become a net exporter of oil, and that, along with fairly stable prices, has meant that our trade deficit in petroleum declined to $13.1 billion through November, which is more than $35 billion less than it was during the same period in 2018.

This is still good news, both for the overall trade deficit and for the goal of energy independence, but it hides the fact that the non-petroleum trade deficit, which is mostly manufacturing, was up almost $20 billion through November compared to the same period in 2018, which leaves open the possibility that the full-year deficit in non-petroleum goods will be the biggest ever, ahead of 2018’s record.

Second, the other reason the deficit is down is fewer imports: U.S. imports in November 2019 (the most recent data available) were $15 billion less year-over-year and $20 billion less than the amount imported in October 2019, which the president and Peter Navarro, the White House trade adviser, will say is proof his tariffs are working. Maybe so, but most economists would say it is more likely a sign of declining demand, which hints at a looming recession. Of course, as the old joke says, economists have predicted nine of the last five recessions, so we should not automatically assume one is imminent, but last year’s roller coaster ride of data hinting successively at boom and bust several times suggests we should also not assume the economy is out of the woods.

There is also the nasty habit of data cherry-picking. Yes, it appears the 2019 trade deficit will be smaller than that of 2018, but even after 11 months, it is more than $60 billion higher than it was in all of 2016, President Obama’s last full year in office. So, despite the president’s obsession with outdoing Obama on everything, trade is one area where at least one thing has gotten worse rather than better even by President Trump’s own way of measuring.

The fine print will also loom over the agreements that have been completed. In the Trump administration, all trade agreements are, by definition, the greatest ever, but a look at the details often leads to a different conclusion. In the United States-Mexico Canada Agreement, for example, an examination of the text will demonstrate, on the one hand, how much it is like the Transpacific Partnership, and on the other, the relatively modest impact many of the changes will have, particularly with respect to market access. By most accounts, it is still a net positive agreement, but not the big winner the president claims. We should also see shortly whether the same is true of the China phase one agreement—recycled promises and purchase commitments that are less than advertised—or some real breakthroughs.

As the year goes on, I will attempt to wade through the fine print and provide some comments, which I hope will put our agreements in perspective and contribute some facts to a debate that may well be short on them.

William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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