Over at the NYT.
Special for OTE readers, parts that had to be cut for space:
“Since the mid-1970s, the US has regularly imported more than we’ve exported. Net exports (exports-imports) have averaged just under -4 percent of GDP since 2000. Trade deficits are by definition a drag on growth, and that’s especially true in sectors, like manufacturing, that drive the deficit. By linking the trade deficit to manufacturing job loss, Trump made a legitimate argument that resonated with some of his core voters.
There are, of course, many moving parts in the economy, and the trade deficit’s drag on growth has often been offset by other components of GDP. In 2007, the trade deficit was -5 percent of GDP while the unemployment rate was a low 4.6 percent. But the offset in play—the housing bubble—came at a great cost (and was itself, through inflows of cheap capital, related to the trade deficit).”
The idea here is to explain why targeting the economically large and persistent US trade deficit is a reasonable policy goal.
This view is not widely accepted among economists. Everyone gets the by identity, the trade deficit is a drag on growth, but numerous arguments push back on the idea that it’s a problem.
Dean Baker and I tackle the issue here. The punchline, as suggested above, is not that the drag impact of the trade deficit never gets offset. It clearly does, at times. But when offsets are less forthcoming–the Fed’s run out of ammo; the fiscal authorities have gone all austere–the demand-reducing drag from trade imbalances is a problem.
Second, even in flush times, the trade deficit, which is exclusively in manufactured goods, affects the industrial composition of employment, and it is in this regard that Trump has been able to so effectively tap its politics. While high-ranking democrats were running around pushing the next trade deal, he was talking directly to those voters who clearly perceived themselves far more hurt than helped by globalization.
Third, the parenthetical reference above to cheap capital inflows plays a central role in my analysis. Details here and in links therein, but I find that many economists who view the trade deficit as wholly benign fail to deal with these macrodynamics.