{"id":221307,"date":"2024-04-06T20:56:34","date_gmt":"2024-04-06T20:56:34","guid":{"rendered":"https:\/\/michigandigitalnews.com\/index.php\/2024\/04\/06\/thinking-about-trade-war-ii\/"},"modified":"2025-06-25T17:19:09","modified_gmt":"2025-06-25T17:19:09","slug":"thinking-about-trade-war-ii","status":"publish","type":"post","link":"https:\/\/michigandigitalnews.com\/index.php\/2024\/04\/06\/thinking-about-trade-war-ii\/","title":{"rendered":"Thinking about Trade War II"},"content":{"rendered":"

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A flurry of investment bank newsletters (Wells Fargo<\/a>, GS<\/a>) impels me to look at what happened to the aggregate trade balance in the wake of Trump\u2019s tariff hikes:<\/p>\n

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Source:<\/strong> Wells Fargo<\/a>.<\/em><\/p>\n

The US trade-weighted tariff rate against world imports roughly doubled to nearly 3%. What happened to aggregate net exports and the current account, expressed as a share of GDP?<\/p>\n

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Figure 1:<\/strong> Net exports to GDP (bold blue), net exports ex-petroleum (green), and current account (tan), all as share of GDP. Trump administration shaded orange, dashed line at start of Section 232 and Section 301 actions. NBER defined recession dates shaded gray. Source: BEA, NBER, and author\u2019s calculations.<\/em><\/p>\n

At the beginning of the Trump Administration, the net exports to GDP ratio was -2.8%; by the end (2020Q4), it was -3.5%. What about excluding petroleum imports and exports? Then the deterioration was even worse \u2014 going from -2.4% to -3.5%.<\/p>\n

What if we start from the real start of the trade war, 2018Q2. Then the net exports ratio declines from -2.6% to -3.5% by administration\u2019s end.<\/p>\n

What about imports \u2014 rather than the trade balance? Here, the change in imports is hard to see.<\/p>\n

\"\"<\/a><\/p>\n

Figure 2:<\/strong> Imports to GDP (black), imports ex-petroleum (teal), both in logs of Ch.2017$. Trump administration shaded orange, dashed line at start of Section 232 and Section 301 actions. NBER defined recession dates shaded gray. Source: BEA, NBER, and author\u2019s calculations.<\/em><\/p>\n

Imports do decline starting in 2019, but I\u2019d attribute that more to the strengthening dollar than tariffs. In any case, by the end of the Trump administration, imports ex-petroleum is about the same as share of real GDP as at the start of the tariff war.<\/p>\n

Since Mr. Trump doesn\u2019t believe that trade balance calculations shouldn\u2019t include services, I include the evolution of the goods (only) trade balance.<\/p>\n

\"\"<\/a><\/p>\n

Figure 3:<\/strong> Net exports of goods to GDP (dark blue), as share of GDP. Trump administration shaded orange, dashed line at start of Section 232 and Section 301 actions. NBER defined recession dates shaded gray. Source: BEA, NBER, and author\u2019s calculations.<\/em><\/p>\n

That too declines.<\/p>\n

So what about Mr. Trump\u2019s statement:<\/p>\n

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\u201cFor many, many years, the United States has suffered through massive trade deficits. That\u2019s why we have $20 trillion in debt. <\/i>So<\/i> we\u2019ll be changing that.\u201d <\/i>June 30, 2017<\/i><\/p>\n<\/blockquote>\n

Here\u2019s the NIIP to GDP ratio.<\/p>\n

\"\"<\/a><\/p>\n

Figure 4:<\/strong> Net international investment position (ex-derivatives) as share of GDP. Trump administration shaded orange, dashed line at start of Section 232 and Section 301 actions. NBER defined recession dates shaded gray. Source: BEA, NBER, and author\u2019s calculations.<\/em><\/p>\n

Well, not quite \u201cmission accomplished\u201d. At the start of the tariff war, the NIIP was -43% of GDP; at the end of the Trump administration, the NIIP was -67%. While changes in the NIIP are heavily influenced by changes in the exchange rate, it\u2019s also true that the cumulated current account (an alternative measure of NIIP not subject to such large exchange rate related valuation changes) went from -50.3% to -53.0% over this same period.<\/p>\n

\u00a0<\/p>\n

\u00a0<\/p>\n<\/p><\/div>\n

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