Bad economics reporting shock horror

Given all that's going on in the world, it was something of a surprise to see this story about the US trade deficit receive top billing on the BBC news website today.  Not just the BBC either -- CNN also ran a big story about the record trade deficit that the US posted last year, similarly portraying it as a big blow to Trump and his trade wars.

Far be it from me to defend Trump's economic policies, or anything else he does for that matter, but this is very poor reporting.  During the course of my business career I did countless interviews with the media, and realized at a very early stage that very few of the reporters I dealt with had any understanding of business and economics at all.  Based on these stories, very little has changed.

Recall that Trump only imposed his tariffs part way through 2018, and only on certain goods from certain countries.  Then consider that when tariffs or similar measures are imposed, businesses can't just turn on a dime and switch to domestic suppliers.  Even if comparable products can be sourced at home, it takes time to cancel existing contracts and arrange new ones.  In many cases it may never be possible to find new suppliers: businesses just have to pay the tariffs and hope they can pass the cost on to their customers.  None of this happens overnight, or even within a few months.

It's important to keep in mind that the tariffs don't operate in some kind of a vacuum.  The US economy is continuing to grow smartly even as signs of a slowdown elsewhere in the world are multiplying.  If the US economy is outpacing its trading partners, it's only to be expected that its trade balance will worsen.

The data released today should not have come as a surprise to anyone who has been paying attention.  Trump has been tweeting regularly about how much money the US Treasury is making from his tariffs.  He think's it's China that's paying them, when it's actually US consumers, but leave that aside for the moment.  If the tariffs had brought trade in the affected goods to a screeching halt, there wouldn't be any additional revenue pouring into the Treasury, would there?

There are other factors that we could look at -- the gyrations in energy prices at a time when the US has re-emerged as a net exporter, the difficulty of unwinding global supply chains, and so on.  Very possibly, importers have been increasing shipments out of fear that another round of tariffs may be imposed at any time: that would help explain the major surge in the trade deficit just ahead of year-end. It's safe to predict that Trump's asinine trade policies will eventually lead to a slowdown in the growth of global trade; it's much more risky to assume that they will ever lead to a reduction in the US trade deficit. 

UPDATE, 7 March. Not all journalists are alike.  Here's an excellent analysis from Slate.