Trump trade data proposal defies common sense, honest accounting

The Trump administration is reportedly weighing a change in how the government keeps track of trade. According to a Sunday report in the Wall Street Journal, the change would mean that goods that are imported to the U.S. and then “re-exported” to another country would be counted as imports but not as exports.

If implemented, the change would magnify the size of the U.S. trade deficit, reinforcing the president’s view that existing trade deals need to be renegotiated. 

{mosads}Reconfiguring U.S. trade numbers in such a fashion would be a bad idea motivated by an economically shaky assumption. The assumption is that exports are the positive side of the trade ledger and imports are the negative side. Therefore, a trade deficit is a net negative for the U.S. economy.

By reducing the official count of exports and enlarging the trade deficit, or so the thinking goes, policymakers may be more likely to take steps to “fix” the deficit by reducing imports. 

This mercantilist approach misses the core reality of trade — Americans benefit from imports and exports, arguably even more so. Imported goods benefit the vast majority of Americans by spurring more competition to satisfy consumers with better products at lower prices. This raises the real wages of American workers, especially low-income workers who spend a larger share of their budgets on such tradable goods and food, clothing, and shoes. 

Imports also allow American producers to compete more effectively in global markets by providing imported components, raw materials, and machinery at lower, world prices. More than half of what we import every year is not for consumption but for production — fueling U.S. industry, output, employment, and global sales. Without access to global supply chains, U.S. companies would export fewer cars, airliners, chemicals, and pharmaceuticals. 

Not all goods exported from the U.S. are made in the U.S. Some exports are what are known as transshipments, re-exports, or foreign exports. These products enter a U.S. port from abroad and are then shipped to another country with little to no modification in the U.S. It is this kind of export that the Trump administration is weighing whether to exclude from the total U.S. export count.

An argument could be made to not count transshipped goods at all in the trade numbers, neither as imports nor as exports, since they only pass through U.S. Customs territory. But to count a good as an import when it enters the United States but not as an export when the same product shipped abroad would defy common sense and honest accounting. 

Counting a transshipped good as an import but not an export would make as little sense as counting it as an export but not an import. It is both or neither. Its impact on the amount of goods in the domestic economy is effectively zero, with the import and export effectively cancelling each other out. The re-export of goods should not bother mercantilists, since the good is not consumed in the U.S. and, therefore, not threatening to displace competing domestic production.

The reality of trade is that even transshipments benefit the economy by creating opportunities to add value as a hub for global distribution and logistics. Hong Kong and Singapore have grown rich in large part because of their prominent roles as re-exporting nations.

Hundreds of thousands of good-paying jobs have been created in the United States in seaports and airports that handle the transshipment of goods and in sophisticated distribution centers that direct goods to their final destinations at home and abroad.

South Florida, for example, has become an important hub for the distribution of products to markets throughout Latin America. The region supports a thriving network of warehouses, distribution centers, and busy ports that handle both U.S.-made and foreign-made goods for export.

To count those transshipments as imports but not exports would create the false appearance that the goods were consumed domestically, while also discounting an important engine of economic activity.

If the Trump administration wants to provide the public with a more accurate picture of the contribution of trade to our economy, it should stop trying to tamper with the trade numbers and, instead, focus on expanding the freedom of Americans to both buy and sell goods in global markets wherever those goods are produced.

Daniel Griswold is a senior research fellow and co-director of the Program on the American Economy and Globalization at the Mercatus Center at George Mason University.

The views expressed by contributors are their own and not the views of The Hill.