The basic idea that Trump's trade strategy has shown that it is easier to shift trade away from China than to bring down the overall trade deficit is clearly right.
But also need to recognize that the non-oil trade deficit stopped rising this year. Peak was in late 18.
1/x
But also need to recognize that the non-oil trade deficit stopped rising this year. Peak was in late 18.
1/x
Non-petrol trade deficit rose from under $700b to over $900b in Trump's first two years, thanks to the stimulus and relatively limited tariffs. It looks to be flat to down over the course of this year -- thanks to the recent slide in imports (and slower US growth)
2/x
2/x
Imports of manufactures have been very weak. Some of that's the inflated base from last year (beat the tariffs). some of that is the GM strike (weak auto parts imports). But some is the last round of tariffs.
3/x
3/x
As you can see from the previous chart, the increase in the manufacturing trade deficit earlier this year wasn't from higher imports (the rise in imports from Taiwan and Vietnam hasn't been big enough to offset the fall from China) but rather from weak exports
4/x
4/x
That's super clear in the most recent data -- which admittedly has been influenced by the GM strike.
Imports from China are WAY down after the 15% tariff on the $112b list. But imports from the rest of the world are also down.
5/x
Imports from China are WAY down after the 15% tariff on the $112b list. But imports from the rest of the world are also down.
5/x
E.g. the reallocation of the trade deficit from China to others is largely a function of falling exports, not (for now) a major reallocation of imports away from China to others (overall imports are down post tariffs)
6/x
6/x
I personally think the fall in exports is mostly a function of the dollar's strength, not trade retaliation.
(the retaliation mattered for exports to China, but exports to China & HK are only just over 10% of total manufactured exports)
7/x
(the retaliation mattered for exports to China, but exports to China & HK are only just over 10% of total manufactured exports)
7/x
So, but for the tariffs, the non-petrol deficit likely would have increased over the course of 19 (it will still be up 19/18 but mostly b/c of the rise in h2 18).
8/x
8/x
But the tariffs had a macro impact largely because they directly (higher taxes) and indirectly (the uncertainty effect on investment) reduced demand ... and thus savings relative to investment.
What they haven't done is reallocated demand back to American producers.
9/9
What they haven't done is reallocated demand back to American producers.
9/9
