Trump and his Trade person, Peter Navarro, (I just cannot get myself to write ‘economist”) want to redefine the US trade balance to scare Americans. Neither the OECD, UN, World Bank or IMF trade statistics use Trump’s definition — this should give us pause and raise suspicions that Trump/Navarro are in the process of creating “alternative economics.” The Wall Street Journal calls it a “fuzzy math” “trade trick.” Here is the issue in a nutshell, the trade balance is defined as

TB = X – M

Trump/Navarro want to define the trade balance as

TB = X – M – Re-Exports

to “exaggerate the overall U.S. trade deficits with countries such as Mexico, and create the illusion of deficits where none exist” (WSJ). Re-Exports are goods that are exported in the same state that they were previously imported. Re-exports equal the difference between total exports and domestic exports. At first it may seem reasonable to focus on domestic exports only.

Issue #1. If we are deflating our trade balance by Re-Exports, why wouldn’t we also deflate imports by Re-Imports? Reliable statistics for this do not exist. Caroline Freund provides a detailed explanation.

Issue #2. The focus on bilateral trade balances is a scare tactic, but reveals little about the US economy or economics. As Nicholas Kristof outlined so eloquently, it is the overall US trade deficit that matters, which is given by National Savings – Investment.

Issue #3) The issue had originally invented by trade alarmist Senator Bernie Sanders. It was misguided then then and it wrong now.