The U.S. administration is concerned with “specific” trade deficits in specific regions of the United States, rather than looking at trade balances overall, according to a former chief economist of the International Monetary Fund.
Raghuram Rajan, speaking to CNBC on Tuesday, also called for the United States to gauge its performance beyond “narrow measures,” given that the trade deficit is likely to get bigger.
The U.S. actually runs a surplus in services, said Rajan, who noted that surplus “didn’t enter the equation,” when President Donald Trump falsely claimed that the U.S. runs a trade deficit with Canada, as reported last week.
“President Trump said, ‘No, we are running a trade deficit.’ What he meant here is, we’re running a manufacturing or a goods trade deficit. In fact, the U.S. is running a surplus in services,” said Rajan, who was at the Credit Suisse Asian Investment Conference in Hong Kong.
“It didn’t enter the equation because services go to the guys in the cities, not the constituencies that are manufacturing goods — I think that’s very, very telling of what the priorities of the administration are: It’s not about fixing the deficits, it’s about fixing specific deficits in specific industries,” said Rajan, also formerly India’s central bank governor. He’s now a finance professor at the University of Chicago Booth School of Business.
The U.S trade deficit is set to grow, because the country will consume more foreign goods as its economy gets bigger, Rajan said.
The United States is likely to run a big fiscal deficit as well, because of tax cuts and high employment, he said. That deficit will in turn feed into the current account deficit and the trade deficit.
“If that’s how they measure their success, well, things are going to get worse, because they’re going to see that the trade deficit is going to expand. It’s not because others are cheating — it’s because the U.S. will be consuming more of foreign goods,” he said.
One way for the United States to address its trade deficit, he said, is to negotiate the removal of other countries’ barriers to its exports.
“But In terms of measuring how you perform,” he said, “based only on manufacturing seems an overly narrow view of what the U.S. should be doing.”
For example, the United States is “one of the largest if not the largest service exporters” in the world, Rajan said.
“So you cannot look at narrow measures and argue that this is how we should be measuring our performance,” he said.
— CNBC’s Bernie Lo and Akiko Fujita contributed reporting.
