That Record Merchandise Trade Deficit Is 4.3 Percent of GDP9th March 2019
It is always fun, even if tiresome, to mock Donald Trump for getting things wrong. This is why the jump in the merchandise trade deficit last year to $891.2 billion was especially newsworthy.
Trump had made the trade deficit one of the central issues in his campaign and promised to reduce it to bring back good-paying jobs in manufacturing. He was going to use his skills as a negotiator to get better deals from our trading partners. For this reason, the fact that the deficit is going up, not down, is somewhat amusing. In this case, unlike the last decade, the rise in the trade deficit is associated with a modest increase in manufacturing employment rather than a crash, so the implications of the rise are not nearly as serious.
Nonetheless, it is worth getting the story straight. It is somewhat misleading to refer to the 2018 trade deficit as “record-breaking” as in this Washington Post headline. While the $891.2 billion deficit is considerably larger in nominal terms than the previous record of $838.3 billion, set in 2006, it is considerably smaller measured relative to the size of the economy.
The 2018 deficit is equal to 4.3 percent of GDP. The 2006 deficit was equal to 6.1 percent of GDP. If we are making historical comparisons, this is the more relevent figure, not the dollar amount.
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