Over at Bloomberg View, I write a bit about U.S. trade policy since World War II–and how the steel tariffs Trump has announced do, and don’t, fit into this history.
The White House has issued talking points defending the tariffs, which rely heavily on the claim that “[t]rade deficits shave growth off our GDP.” It’s a claim Trump-administration officials Wilbur Ross and Peter Navarro have made before, and it seems to be based on a simple misunderstanding.
Gross Domestic Product, the figure that includes the value of everything produced in the United States, can be separated into components: consumption, investment, government spending, and net exports. That is, GDP = C + I + G + (X – M), where X means exports and M means imports.
It might look, then, as though imports reduce GDP. But that’s a mistake. The reason imports are subtracted in the formula is that consumption, investment, and government spending all include imports. Imports have to be subtracted so as to count only domestic production. In no way does the formula imply that imports are bad for the American economy.