Analysts warn against Trump plan for distorted trade data
PRESIDENT Donald Trump has reportedly ordered a change to the US trade deficit calculations to bolster his argument against trade deals, but analysts say this could undermine a key economic indicator.
The news follows other reports that the Trump team also has directed career staffers at the White House to engineer unusually rosy growth and revenue forecasts to support ambitious budget proposals from the new administration.
These moves have stoked fears about the credibility of economic data under Trump.
Over their objections, officials at the office of the US Trade Representative’s office last week produced new trade balance data using a methodology that exaggerates deficits with key US trading partners such as Mexico, the Wall Street Journal reported on Sunday.
The picture of yawning trade gaps could help Trump’s stance that the US is getting the short end of the stick in free trade deals.
Trump repeatedly has vowed to renegotiate the North American Free Trade Agreement with Canada and Mexico – which he called a “disaster” – and senior US officials are in Mexico this week for meetings at which trade is one item on the agenda.
The alternate trade data – intended for consumption on Capitol Hill, according to the Journal – could help the Trump administration garner support among lawmakers for what he says is the need to renegotiate those trade pacts.
At issue in the new trade figures is the question of “re-exports”, or imported goods which transit the United States on their way to be sold in a third country. By excluding those goods from the tally of US exports, but keeping them in the calculation of imports, trade deficits would appear to be much larger than the official data indicate.
‘Nonsense data’
Alan Deardorff, professor of international economics at the University of Michigan, said altering the data – which is calculated in a common format in many countries – is problematic.
He said that “excluding reexports from exports but not from imports would create nonsense data”.
“If all countries were to do that, then international trade data for the world would have far more imports than exports,” he said.
Former US Treasury Secretary Larry Summers, who worked under the Clinton administration, warned that manipulating statistics for political advantage would spur protectionism.
Trump’s alternate method would be “Dumb, dishonest and dangerous”, Summers wrote on Twitter.
“Dumb because if imports subtract, why don’t exports add to trade surplus?” he tweeted, adding, “A re-export is just a negative import.”
Jeannine Aversa, spokeswoman for the Commerce Department’s Bureau of Economic Analysis, said that the agency counts re-exports when calculating exports and imports.
And there are currently no proposed changes to methodology, she said.
Some lawmakers and critics of the current way of calculating deficits say excluding re-exports could be more accurate.
Lori Wallach, head of the Global Trade Watch at the progressive organisation Public Citizen, said counting only USproduced exports would nearly double the 2015 US trade deficit with Mexico to $109 billion from $60 billion.
“Interests seeking to maintain current US trade agreements and policies undoubtedly oppose refinements to the current data that would accurately expose the extent of US trade deficits with trade agreement partners,” she said in a statement on Tuesday.
Citing Commerce BEA Depart- ment figures, Wallach said the share of US exports to Mexico that were re-exports had risen from 3.3 percent in 1993, the year before NAFTA took effect, to 21.4 percent in 2014.
Backfiring?
However, Caroline Freund, a senior fellow at the Peterson Institute for International Economics in Washington, warned against altering the calculations.
“I think it actually is going to end up backfiring,” she added. “I think all this playing with numbers will make them lose credibility.”
Trump campaigned and took office loudly attacking the credibility of official numbers on subjects as varied as the unemployment rate, the results of the general election and attendance at his inauguration.
And the White House reportedly instructed the Council of Economic Advisors – whose chair Trump has removed from his cabinet – to use growth forecasts of between 3 and 3.5 which only added to fears that the new administration could be cooking the books to meet its ends.
Katherine Wallman, who earlier this year ended a 25-year stint as the US chief statistician at the White House Office of Management and Budget, said safeguards in methodology would likely prevent any administration from directly monkeying with official figures.
But funding cuts could eliminate or worsen the quality of the underlying data, she said.
“Despite the fact that we have safeguards, there also have been occasions in the past when political appointees have been trying to change what was highlighted in the press releases issued by the agencies,” she said.