White House May Change Calculation Of US Trade Deficit, Boosting Trade War Odds

Tyler Durden's picture

In the latest surprising announcement to emerge from the Trump White House, the WSJ reports that the Trump administration is considering changing the way the U.S. trade deficit is calculated, a shift that would make America's trade gap appear even greater than it has been in recent years, potentially making future trade skirmishes and wars with America's export-heavy trade partners far more likely. 

According to WSJ sources, the White House is considering not counting re-exports from the US trade balance: i.e., excluding from U.S. exports any goods first imported into the country, such as cars, and then transferred to a third country like Canada or Mexico unchanged. Such an approach would inflate trade deficit numbers because it would typically count goods as imports when they come into the country but not count the same goods when they go back out.

As the WSJ notes, data on trade balances and surpluses, widely followed by Congress, are at the center of a political battle over whether existing trade agreements should be retained, renegotiated or tossed out altogether. Should the change be implemented, it would have a stark effect on data involving countries that have free trade deals with the U.S., and in some cases the new methodology would even change a trade surplus into a trade deficit.

As the charts below show, the total impact of the "redefinition" would amount to roughly $250 billion per year, and would have the most acute impact on Nafta partners, Mexico and Canada, which are the top two destinations for US re-exports.

Ironically, it was just one week ago that we explained that in the new Trumpian (ab)normal, FX traders would soon need to learn a new skill: "how to read trade flows." Today's WSJ story confirms not only that, but suggests that even more newly acquired skills are on deck. Meanwhile, even more opposition in government appears to be emerging, this time among bean counters tasked with estimating US trade flows who are opposed to the proposed trade adjustment:

Career government employees objected last week when they were asked to prepare data using the new methodology, according to the people familiar with the discussions. These employees at the U.S. Trade Representative’s office complied with the instructions, but included their views as to why they believe the new calculation wasn’t accurate. One person familiar with the discussions said the employees were told the new calculations were to be presented to members of Congress.

There is of course the possibility that this latest leak of Trump economic tactics is merely a trial balloon to gauge the market response:

Trump trade officials said the idea is part of an early discussion and that they are examining various options. It is unclear whether the administration would adopt any new approach for measuring trade as part of official government data, or just use the higher deficit calculation to make the case for new trade deals.

 

“We’re not even close to a decision on that yet,” said Payne Griffin, the deputy chief of staff at the office of the U.S. Trade Representative. “We had a meeting with the Commerce Department, and we said, ‘Would it be possible to collect those other statistics?’”

A spokeswoman for the Census Bureau which calculates the trade deficit said she wasn’t aware of discussions about changing the data.

Still, should the new calculation be implemented, some say it would lead to a more accurate picture of the value of products produced in one country and consumed in another. With their focus on domestic manufacturing, Trump administration officials want to measure exports of American-made products, not items shipped from abroad and re-exported.

However, several economists interviewed by the Journal, were not impressed and were uneasy with fully excluding re-exports from exports but not imports. “As a statistician, you generally want symmetry,” said Steve Landefeld, former BEA director. “If you’re going to begin to exclude re-exports from the U.S. export figures, you probably for reasons of symmetry” would want to adjust import figures as well.

Some further considerations:

Re-exports are currently included in “total exports” figures most frequently cited and used by the Census Bureau to calculate the trade balance. On the imports side, officials are also exploring switching to “imports for consumption,” a slightly narrower way of measuring imports that would make less of a difference in the overall balance.

The Obama administration, which resisted calls from critics of its trade policy to change the figures, argued that excluding items re-exported from the U.S. export column but including them in U.S. imports could inflate the trade deficit or trim surpluses. In July 2010 Obama also promised to double American exports in five years. He failed.

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Seasmoke's picture

Good. And the change the inflation calculation next.

GUS100CORRINA's picture

It is about time that the nation moved to a policy of presenting "TRUTHFUL DATA" versus the "FAKE DATA" current being presented by "FAKE NEWS".

Pure Evil's picture

Obama failed?

Who knew?

 

But, of course, I'm still waiting to save $2500 a year on my medical insurance and see the doctor I wanted to keep.

brianshell's picture

Call in John Williams at Shadowstats.

Mikeyy's picture

I guarantee this change won't happen. Here's why. The way GDP growth is calculated, a balance of trade deficit deducts from GDP growth.

Therefore, reducing exports (or in this case what we call exports) increases the balance of trade deficit and reduces quarterly growth, making Trump's 4% growth campaign promise even harder to achieve.

So, pay attention going forward. This particular change will very quietly go away and never be heard again.

And all of you who are hoping for greater transparency will be disappointed.

KingsRow's picture

The headline should be: "United States Census Bureau Counts Imported Goods Exported as Exports" 

besnook's picture

if that is resally the case then it would make sense not to count the product as imports if the usa is just a transfer point. sounds like there is a lot more to the story than number fudging, however.

order66's picture

The entire suite of data from the BLS could also use a complete reality adjustment.

DemandSider's picture

As a tax payer, I'd rather not be lied to, so, I welcome the change.

ThanksIwillHaveAnother's picture

It should be counted as an import only.  Exports should only be for native services and products.

ALANBEEKMAN's picture

They're not known as the 'Bureau of Lying Statistics' for nothing.

 

gdpetti's picture

If Trump wants to clean house, then bring in that ShadowStats guy to 'fix' that dept.... he has the real numbers... and if Trump is positioned for the market sell off, then let it fall and expose everything else while at it... get it all 'out of the closet'.. be done and over with... as Mother Nature will give you much, much more to deal with soon enough.

small axe's picture

How will itinerant hookers and re-smuggled cocaine factor into the new numbers? Can we add prostitition and drugs to GDP as in the UK and EU? Naaaaaaaahh, that would inflate the numbers, not fair...

Pure Evil's picture

If they add in prostitution and drugs to the GDP they's only realize they could legalize it and tax it and pay off the budget deficit for the next 200 years.

JTimchenko's picture

Will Trump change the fake inflation numbers, too, in order to calculate inflation honestly? Perhaps, we shall see an explosion of new-found honesty!

Incidentally, the WSJ is wrong. The proposed new trade calculation excludes BOTH the import AND the export. The difference is that the export is usually done at a profit to someone. The trade balance appears better than it ought to be because the base price + this paper pushing profit is erroneously classified as the "export", whereas the base price without this extra cost is classified as the "import".

No new jobs are created simply because a middle-man makes a profit. Nor does that fuel America's factories or slow down the hollowing out of our manufacturing base. The few port jobs that depend on this re-export trade won't go away just because the government changes the formula, incidentally. Japanese cars will still arrive at the port of Los Angeles and Seattle and get shipped to northern Mexico and western Canada, respectively, because it is cheaper to do it that way.

The only question is whether you include the paper pushing profit as an "export" of goods, which it clearly is not. The paper-pushing profit will still appear in the nation's capital account, which records net financial flow, just not in the balance of trade in goods, because it doesn't belong there, obviously.

BigFatUglyBubble's picture

Would this give Ms. Yellen extra excuse ammo for moar Ctrl-P?

TeethVillage88s's picture

Economist has NEGATIVE $750 Billion Trade Balance.

http://www.economist.com/node/21604509

Trade balance Current-account balance Currency units Budget balance Interest rates
Country latest 12 months, $bn latest 12 months, $bn % of GDP, 2016* Feb 16th, per $ year ago, per $ % of GDP 2016* 3-month latest 10-year government bonds, latest
United States -750.1Dec

http://www.chapwoodindex.com/
http://www.shadowstats.com/alternate_data/unemployment-charts
http://independenttrader.org/lies-damned-lies-and-statistics.html

falak pema's picture

You mean the towering colossus is now officially being declared a cowering dwarf?

Yikes! Snow White had seven of them! 

What has Pax Americana become?

Hare Krishna karma addicts drowning in guilt about past crimes of omission or commission?

"I am not a addict of "we were so bad we smell of curry or opium powder !"...I'm 'Make America great' and just look at my wife; does she look the type who eats spaghetti? She only eats diamonds; the best on the market! Just like Ivanka !"

So says the Duck. The spice and silk routes are now officially off bounds.

So what's next ? : The 25 Amendment beats the 2nd according to the Dem crowd!

Haha ! When neocon America has a hangover and Demo  libtard America says to Libertarian deplorable America : you have a cuckoo in the WHite House!

The world is bemused to see neo-con Richard Perle now say : Daniel Perle was not the problem... Forget the ISIS combine. We have a bigger problem like in Reagan's times...

"The problem is Putin. We have to kill the Soviet renegade now dressed up as a Romanoff Czar. I tell you its all a "put on" job; a Manchurian candidate. Believe me, I was a true neo-con,  a patriot,  I invented Towering colossus with my buddy Wolfowitz at the Pentagon !"

Its a riddle, wrapped in an enigma, hidden in a mystery; the current conundrum of US Oligarchy; Neo-cons, Libertarians and Libtards; the three faces of American Adam; aka the brave at home; sort of, before POST combat stress disorder stepped in like the Snake.

Even Eve of AMerican Idol was not so slimy, inspite of dating that snake called Hymie Soros of Blimey globalism.

Adam's crimes beat spare ribs made into chinese Ali baba syndrome of American dead capitalism's takeover by "who flung dung" Asian silk road combine . 

"Vat is the vorld coming to; Aach Gott"... as they say in Berlin today !

 

radbug's picture

My money is still on the PRC rock hitting the hard place, ie., the Beijing runs out of FX to prop up the RMB, leading a major devaluation, leading to major Trumpian tariffs, leading to a strike on USN ships in South China Sea, leading to war between the PRC & the US, enabling Xi to rally the Chinese "around the flag". 

Raul44's picture

Why not simply separate them and collect both? Provide data for "pure" exports, re-exports and all-in-1 together for better overview! Or is it too much work to them?

 

SmittyinLA's picture

Translation, the feds have been lying