Here's how Trump may overhaul US trade data — and why it matters

If U.S. trade data tell a story, the Trump administration may be looking to change the narrative.

As the president aims to make good on campaign promises to "get tough" on U.S. trading partners, his administration is reportedly considering a major change in the way the U.S. reports its trade deficits.

The main idea being discussed, according to a report posted by The Wall Street Journal on Sunday, would involve dropping a category of the data known as "foreign exports" or "re-exports" from the overall tally of U.S. exports.

That category covers a wide variety of transactions that involve goods that are not made entirely in the U.S. and shipped for consumption overseas. As the global supply chain has gotten more complex — with goods made in multiple countries at various stages of production — that category has grown.

Reporting the overall trade deficit without that "re-export" category would swell the U.S. trade deficit, which would give Donald Trump added leverage as he tries to renegotiate new trade deals.

The White House did not immediately respond to a request for comment.

Here's how the trade data work:

What, exactly, is an "export"?

It sounds simple. But when it comes to trade data, nothing is simple.

The Census Department is the official keeper of the U.S. trade tally, but it relies on international standards to report the flow of thousands of categories of goods and services in and out of the country.

Exports include goods shipped out of the country that are 1) entirely made in the U.S. 2) produced in the U.S. with components made overseas, 3) goods that entered the U.S. for packaging or minor processing and 4) goods shipped here for sale by consignment, like artwork. Goods that are just passing through — like a Japanese car shipped to Long Beach, California, for a Canadian car dealer — don't make the count.

So what is a "re-export"?

The list of export categories also includes one paradoxical label "foreign exports," consisting of goods that are shipped to the U.S. and then re-shipped overseas with little or no change in condition. They could be goods that were marked up for resale or returned unsold to the country of origin. That's why they're also known as "re-exports."

Why does Trump want to exclude re-exports?

First, doing so would make the U.S. trade deficit look worse — in some cases, much worse.

Eliminating the "foreign exports" category, for example, would make the trade deficit with Mexico nearly twice as big.

Here's how the change would have affected the overall deficit numbers in 2014:

If these goods are just being returned or resold, why does eliminating the tally make the trade deficit bigger?

Because, in general, just dropping the "foreign exports" category would only eliminate them from one side of the ledger (exports) and not account for the change on the import side.

There are multiple ways the change would alter the overall deficit, and the math varies from one type of transaction to another.

In most cases, eliminating this category alone would tend to overcount the level of imports and undercount the level of exports.

Here are some examples:

How would this affect the trade deficit with China?

That depends on which country you ask.

China and the U.S. have long disputed each other's trade data, in part because the two countries use different methods of counting imports and exports.

When calculating exports, for example, China adds the costs of shipping goods to port and loading them onto a ship, which the U.S. does not. On the other side of the ledger, China adds insurance and shipping costs to the value of imports, which the U.S. excludes.

Both countries agree that the deficit is large. But they don't agree on the size of the trade deficit or how fast it's grown, according to a report last year from the Congressional Research Service.

U.S. officials figure that the trade deficit quadrupled between 2001 and 2015, to $367 billion. China counters that the deficit increased ninefold during the same period, to $237 billion.

So the Trump administration's change would make that trade deficit even worse?

Not exactly. It takes more than just changing the way you measure trade to alter the balance. For that, you need real changes in policy and or other forces that alter the actual volume of goods and services. Just using different data doesn't change anything.

In the meantime, other countries and international agencies will continue to use the same methodology to track the volume of goods and services in and out of the U.S.

But the change could let Trump tell a different story about U.S. trade deficits.

Watch: This economist bullish on global trade