President Trump speaks during a meeting of the White House Opportunity and Revitalization Council, April 4, 2019. (Kevin Lamarque/Reuters)

New York Times economics reporter Jim Tankersley set out to evaluate President Trump’s claim that his tariffs are helping the economy. He finds that the evidence mostly suggests that the tariffs are harming the economy, albeit not harming it enough to keep it from growing and yielding wage gains. In one respect, though, he understates his case: He falls prey to the same misunderstanding of the national income accounts that some of the president’s advisers do.

Tankersley writes,

The formula for calculating the size of the American economy, gross domestic product, is deceptively simple. It combines a number of economic metrics, including consumer spending, business investment and government spending. And it also factors in the difference between the value of what the United States exports and what it imports. For more than 40 years, that difference has been negative as America bought more foreign goods and services than it sold. Imports exceeded exports, which means, technically speaking, that America’s G.D.P. was lower because of trade.

That’s not right, even technically speaking. Bear with me for one equation: GDP = C + I + G + (X – M), where GDP is a measure of the economy’s total output, C is consumption, I investment, G government spending, X exports, and M imports. X is in the equation because what Americans produce for export counts as part of our production. The reason M is subtracted is that if it weren’t, all of our imports would be counted as though they were part of our production. (Consumer imports would be counted under C, and so forth.)

Take a hypothetical case where the consumption of imports increases and nothing else changes. In that case, would GDP shrink? No: C and M would both be higher and the increases would cancel each other out. It is a mistake, therefore, to say that the trade deficit is a “drag” on the economy, as journalists sometimes do.


It is still possible that President Trump’s trade policies will work out well for our country. But I am skeptical, and one of the reasons I’m skeptical is that they so often seem to be based on mathematical error.