Sure, the GDP numbers are negative, inflation is high, and the unemployment rate is predicted to go up as the Fed raises interest rates, but the trade deficit is coming down. Protectionists of all parties can rejoice:
The U.S. current account deficit narrowed sharply in the second quarter amid a surge in goods exports, data showed on Thursday.
The Commerce Department said that the current account deficit, which measures the flow of goods, services and investments into and out of the country, contracted 11.1% to $251.1 billion last quarter.
The current account gap represented 4.0% of gross domestic product, down from 4.6% in the January-March quarter. The deficit peaked at 6.3% of GDP in the fourth quarter of 2005.
It’s the largest quarterly current-account-deficit decline since Q1 of 2009, during the Great Recession. The current-account deficit hovered around $100 billion from 2010 through 2020, then it more than doubled during the pandemic.
The pandemic economy was not a happy time, and it saw a soaring trade deficit. The Great Recession economy was not a happy time, and it saw a declining trade deficit. Now that the Fed is raising interest rates to quell inflation, import growth is slowing as demand eases, while the high price of oil is inflating the value of American energy exports, which has combined to reduce the trade deficit. Is that inherently good news?
This should serve as a reminder to everyone that the trade deficit is not an indicator of economic health or sickness. It’s a number that’s useful for accounting and not much else. A decline in the trade deficit is not necessarily a good thing, and an increase in the trade deficit is not necessarily a bad thing. Targeting it with economic policy is a fool’s errand.