Trade deficit shrinks, so what?

The trade stats for 2019 show that the trade deficit shrank by $11b, a 1.7 percent drop.  This is an economically significant number.  But what does it mean?  Trade deficits reflect the difference between exports and imports.  They shrink if exports grow, holding imports constant, or if imports decline, holding exports constant.

Nothing is ever held constant in the real world, however.  In 2019 the volume of both exports and imports became smaller, reflecting the trade barriers created by the US and some of its trading partners.  But imports declined more than exports, so the deficit shrank as well.

Are we better off with a smaller deficit?  Exporters would say no.  Nor would the companies with global supply chains that have had to play guessing games with tariff timing and exemptions.

Protectionism has sprouted up in a number of countries as part of a portfolio of nationalist, inward-looking policies.  Politicians promised that trade wars would lead to domestic job growth.  So far, there is no evidence in the US of a recovery in manufacturing in response to a smaller volume of imports.