Calling All Trade Economists

We've got important work to do.

This is the scariest thing I wrote this week. It refers to the Trump administration’s plan to appeal the currently stayed ruling by the Court of International Trade (CIT) that found the president’s trade war had far overstepped his legal authority:

Another scenario is particularly concerning. If they appeal this to the Supreme Court and win, that will be a major blow to the domestic and global economy, as well as a strong vote for Trump’s authoritarian project.

I’m well aware that some on the SCOTUS are prone to give POTUS whatever he asks for, regardless of law or precedent. That is a big part of the current crisis in which we find ourselves. But, as I’ve said many times, and I’m confident I’m right, resistance is not futile.

In this case, I think it could be potentially helpful, as silly as I know it sounds, if economists quickly publish notes and commentaries that address and debunk the alleged trade-deficit-induced emergency invoked by the Trumpies to justify their use of the The International Emergency Economic Powers Act (IEEPA).

Here, from the CIT decision, is the claim (my bold):

The President stated that these “large and persistent annual U.S. goods trade deficits” constitute an “unusual and extraordinary threat to the national security and economy of the United States,” having “its source in whole or substantial part outside the United States in the domestic economic policies of key trading partners and structural imbalances in the global trading system.”

Ignore if you disagree—folks have enough on their plates already without some rando ginning up new assignments for them. And for most trade economists, the question won’t make sense. If a country saves more than it consumes and invests, it has a trade surplus and vice versa, full stop. There’s just nothing to see here, folks.

But even in this fact-free age of social media, I still think there are cases where filling the public echo chamber with relevant, data-driven empirical arguments, can make a difference. Everyone paying attention to this—and Trump’s trade war has captured many of our attentions—needs to know the absurdity of this claim.

So, I think it’d be useful to flood the zone with analysis showing there’s no plausible argument that the trade deficit constitutes an emergency.

Perhaps the most straightforward case is that we’ve been running trade deficits for almost 50 years running, through good times and bad. The current trade deficit, as shown below in a scatterplot with real GDP growth, is far from an outlier (the dotted regression line shows no correlation). The left side of the figure shows that in the mid-2000s, we had historically large trade deficits and strong real GDP growth.

In fact, it’s often the case that stronger growth is associated with rising trade imbalances as higher incomes pull in more imports. We’ve had numerous periods of full employment accompanied by relatively large trade deficits (latter 2000’s, pre-pandemic).

To be clear, that record of persistently imbalanced trade is not a benign one. There are people and places who have been hurt by it (see the China Shock lit). But it’s no emergency and if this fact is one you can help promulgate, please do so. If Trump wins this appeal, it will be a strong vote against democracy and on behalf of authoritarianism. We’ve all got to do whatever we can to fight that outcome.