We've all heard of the Rorschach test - you know, the one where you look at an ink blot and say what you see. The theory is that it's a tunnel into someone's subconscious thoughts or desires. If you're obsessed with hockey you might look at an ink splotch and see hockey sticks, or pucks, a Stanley Cup, or even Bobby Orr; if someone is obsessed with outer space, she could look at the same picture and see flying saucers or aliens.
These tests come to mind because lately, three dominant types of economic thought seem to analyze every data point and come to conclusions that always support their particular interpretation of the US economy.
One group is obsessed with President Trump's tariffs, thinking they are slowing the economy. They even search the internet and earnings calls to find mentions of "trade uncertainty" to prove their point. But uncertainty is one thing, data are quite another. Total US trade in goods and services (exports plus imports, combined) was $4.9 trillion in 2016. In the past twelve months, it's been $5.7 trillion, an increase of 16.3%. In other words, trade has grown faster than the overall economy.
Yes, we know trade tensions with China are real and important for some companies. And yes, we look forward to the US reaching an agreement with China. But the Middle Kingdom is not the be-all end-all when it comes to world trade. Supply chains are moving - trade is dynamic - which is why the costs to the US economy have been far less than static analysis predicted.
So far this year, US imports from China are down 12.3% from the same period in 2018, but imports from Vietnam are up 33.2%, and they are up 20.2% from Taiwan, 9.8% from South Korea, 9.7% from India, and 6.3% from Mexico. Meanwhile, we're confident that Congress will pass the new version of NAFTA by early 2020, facilitating stronger trade ties with Canada and Mexico. Trade is moving forward, not dying.
The second major thought group consists of those who oppose the president's policies in general and are looking for any way they can to discredit the tax cuts and deregulation. They love to focus on supposedly weak business investment, which they say signals the ineffectiveness of the president's policies.