Rising U.S. imports are shouldering some of the blame for this morning’s report that U.S. real GDP shrank by 1.4 percent in the first quarter. The report may signal underlying problems for the U.S. economy, but the growing demand of U.S. households and companies for imported goods isn’t one of them.
In its preliminary snapshot of first-quarter GDP growth, the U.S. Bureau of Economic Analysis pointed to a drawdown of inventories, a slowdown in exports, and decreased government spending as factors behind the drop in GDP. But the agency also noted that imports “are a subtraction in the calculation of GDP.”
News reports this morning have unfortunately gone even further, assuming that a rising trade deficit in the first quarter actually “pushed growth lower” or calling it a “drag on growth.” Opponents of free trade, such as President Trump’s former advisor Peter Navarro, routinely say the same, decrying the trade deficit “drag” and proposing to eliminate it (via protectionism and industrial policy) to boost U.S. output.
Such claims, however, reflect a basic misunderstanding of the GDP calculation and the broader relationship between imports and U.S. economic growth. Indeed, if you dig a bit deeper into this morning’s BEA report, and into recent U.S. economic performance, the supposed negative connection between imports and GDP growth falls apart.
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