If we wanted to reduce the trade deficit — let’s say because we wanted to increase aggregate demand and hence employment, rather than some atavistic belief the deficits are bad — then we will probably need to convincingly deal with the pandemic. Remember, the trade deficit (in NIPA terms) is now bigger than it was the day Mr. Trump took office.
Figure 1: Net exports to GDP ratio (blue). NBER defined recessions shaded gray, dashed line at last NBER peak. Orange denotes Trump administration. Source: BEA, NBER and author’s calculations.
Part of the reason why imports have surged is because consumer goods imports have surged. Consumption of durable goods and imports of durable goods are shown below.
Figure 2: Consumption of durables (blue), consumer durable imports ex.-auto (red), both in billions Ch.2012$, SAAR. Source: BEA.
I haven’t included the increase in imported automobiles in the above figure, given I don’t have statistics on how much goes to business, and how much to households. However, the one below gives an idea of the importance of imports.
Figure 3: Consumption of durables (blue), automobile and parts imports (red), both in billions Ch.2012$, SAAR. Source: BEA.
Obviously, with the cessation of rebates and enhanced unemployment payments, and increased uncertainty regarding a new fiscal recovery package, consumption growth overall will be muted. But households will keep substituting to goods and away from services that entail high contact as long as the pandemic is in place. In this sense, dealing with the public health crisis is essential to dealing with the trade balance (as well as the economy overall).