Trade Deficit Declining
Amidst the economic gloom, the Census Bureau reports that the trade deficit is declining:
The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that total May exports of $123.3 billion and imports of $149.3 billion resulted in a goods and services deficit of $26.0 billion, down from $28.8 billion in April, revised. May exports were $1.9 billon more than April exports of $121.4 billion. May imports were $0.9 billion less than April imports of $150.2 billion.
Sustainable recovery requires some unwinding of the global trade and financial imbalances, so this counts as good news. Nevertheless, it’s still the case that exports are far below their pre-recession high point. The trade gap is narrowing because imports have collapsed even further and faster. And ultimately we’re going to need not just a smaller trade deficit, but several years of surplus. It’s a reminder that however much additional stimulus in the U.S. may be desirable, even better would be additional stimulus from Japan, China, Germany, and the oil exporters. Those are the places where the world really needs more demand.
24 Responses to “Trade Deficit Declining”
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July 10th, 2009 at 1:48 pm
And ultimately we’re going to need not just a smaller trade deficit, but several years of surplus.
Uh, why? Saying we “need” anything in terms of the balance of trade makes all sorts of implicit assumptions that are not at all clear from this post.
July 10th, 2009 at 1:52 pm
Stimulus is deficet spending. Therefore stimulus requires borrowing money. Borrowing money requires someone to lend money. If everyone does a stimulus then who exactly are they all borrowing from?
This goes to the conservative arguement against the stimulus in the first place. People treat it like it was free money but it is a cost that we have incurred.
July 10th, 2009 at 2:00 pm
This is totally wrong.
The US is unlikely to ever run a trade surplus and that is not required for recovery. To run a trade surplus, the dollar would have to drop significantly and/or the US would have to lag far behind in recovery.
World recovery will happen fastest if the US runs a trade deficit (to support 3rd world economies) while ramping up public expenditures domestically.
July 10th, 2009 at 2:02 pm
And ultimately we’re going to need not just a smaller trade deficit, but several years of surplus.
It may well be the case that, at some point, US consumption will need to be exceeded by total output (ie., America will need to run the odd current account surplus). But we don’t need to have a trade surplus to accomplish this. What we most definitely are going to need is less public sector dissavings.
July 10th, 2009 at 2:11 pm
Those are the places where the world really needs more demand.
To someone who measures the health of the world in terms of goods moved and goods consumed, I suppose this makes sense. But if you’re interested in sustainability and human happiness, I think claiming that the world needs more demand sounds terribly wrong-headed…
July 10th, 2009 at 2:13 pm
“Sustainable recovery requires some unwinding of the global trade and financial imbalances, so this counts as good news. Nevertheless, it’s still the case that exports are far below their pre-recession high point. The trade gap is narrowing because imports have collapsed even further and faster. And ultimately we’re going to need not just a smaller trade deficit, but several years of surplus.”
Why think this is true?
July 10th, 2009 at 2:41 pm
We don’t need several years of surplus to correct global financial imbalances. We would need years of surpluses to pay off our external debt.
July 10th, 2009 at 2:54 pm
Question – I design a software company that develops applications to help with supply chain management. I sell my company to SAP for $100,000,000. I then use that money to buy a boatload of Porsches, BMW’s and Mercedes. I then start another software company and sell it to Fuji for $100,000,000 and use it to buy a boatload of Lexi and Infinities. I repeat the process over and over.
Why is the exporting of companies and technologies counted differently than the exporting of capital equipment?
July 10th, 2009 at 3:33 pm
jmo-
It isn’t. companies and technologies are capital assets just like equipment.
Capital assets are expected to produce a flow of revenue.
Creating a company to then sell is no different than creating a machine or software to then sell.
The major difference with a company is the jobs involved.
July 10th, 2009 at 3:37 pm
Ron,
I could be wrong, but I thought our selling of machine tools and commercial aircraft is counted as exports. But, our sale of shares of google or genzyme microsoft shares aren’t counted as exports. Hence our trade deficit.
July 10th, 2009 at 3:37 pm
woops
But, our sale of shares of google, genzyme or microsoft aren’t counted as exports, hence our trade deficit.
July 10th, 2009 at 3:59 pm
The sale of Google to SAP would show up in the trade deficit (or possibly the current account but I think trade).
Sales of small amounts of stock (under 5%) aren’t accounted for.
Generally, non-financial transactions show up as trade and financial transactions are added in the current account.
The trade deficit is the result of exports vs imports of non-financial items. Financial transactions are added to total to the current account balance.
That is why the US often had a trade deficit but a current account surplus.
July 10th, 2009 at 4:14 pm
In response to the ron:
But the problem with including Financial Assets in the determination as to whether you have a healthy economy is similar to the GDP vs. Employment measurement for economic health.
Financial assets in general do not provide a wide-spread enough wealth distribution to continue to maintain the American middle-class. Productive assets and the means of production are what the US no longer produces. It was the largest macro-arbitrage opportunity over the last 30 years, and finally, it is time to settle up.
Eventually, the US Dollar will have to decline to the point where we can compete with the 3rd world. Of course, this means we will have to continue to see a decline in standards of living until we equalize with the 3rd world. A race to the bottom….
July 10th, 2009 at 4:16 pm
Sorry:
I meant to say:
Productive assets and the means of production are necessary to ensure a wide-spread distribution of a country’s wealth. In addition, it ensures the necessary balance between consumers and producers. That balance is no longer around, resulting in the current problem where the consumers of the world are tapped out, but the low wage producers are not wealthy enough to take up the slack.
July 10th, 2009 at 4:17 pm
Actually, exports increased this month, not just fell at a slower rate.
July 10th, 2009 at 4:42 pm
Brad-
I was answering a question, not arguing a point.
My own opinion is that the financial sector, with a massive boost from Robert Rubin and friends, has virtually gutted the industrial sector of the US. One of the most egregious acts of the last 30 years.
July 10th, 2009 at 5:12 pm
The gutting of the manufacturing began under Reagan long before Rubin played a role in policy.
July 10th, 2009 at 5:16 pm
And ultimately we’re going to need not just a smaller trade deficit, but several years of surplus.
As everyone else pointed out, this better not be true, or we are totally screwed.
And, fortunately, it isn’t true. In fact, while a nice recovery in exports would certainly be helpful, even that isn’t strictly necessary for a nice recovery overall, given the relatively small portion of U.S. GDP from exports.
July 10th, 2009 at 5:48 pm
But DTM,
the issue is that our economy in hindsight was not sustainable at the level of exports currently as a % of GDP.
And you are correct, we are totally screwed, which is why the entire Green Shoots crowd are off their rocker.
Until we take care of middle-America and actually produce things again, we are screwed. If every nation could support itself off of insurance salesman and nurses, there would be far less poverty in the world. But the problem is that there is a zero-sum game for the means of production, in which the population far outstrips the demand for workers in productive industries.
Unfortunately, we are shipping them overseas at an alarming pace.
July 10th, 2009 at 5:51 pm
Ron,
sorry if I missed your point. You are correct, in that the financial sector made a ton of money of of the huge macro-arbitrage of shipping jobs overseas but selling to consumers here.
This worked as long as the consumers could borrow to replace lost earnings. But this finally has come crashing down. Those who cashed in before 2007 made a killing.
I find it iroinic that the GE CEO is calling for a reindustrialization of America when his old boss essentially made GE wealthy by moving much of its work overseas, but still asking of Americans to buy their goods.
Henry Ford had it right. If his own workers cannot afford to buy his cars, who could?
July 10th, 2009 at 6:59 pm
I find it iroinic that the GE CEO is calling for a reindustrialization of America when his old boss essentially made GE wealthy by moving much of its work overseas, but still asking of Americans to buy their goods.
His old boss nothing. This is still happening. Some sectors of GE are currently being moved out of the US to Europe over the next year, so this is still going on. Immelt is a big fat hypocrite.
July 10th, 2009 at 8:34 pm
The trade deficit will return as soon as inflation returns. I’m with ron, running a surplus would mean a ridiculously strong dollar and no recovery occurred.
July 10th, 2009 at 8:56 pm
re: Until we take care of middle-America and actually produce things again, we are screwed.
We do produce things: 23% of the world’s manufacturing output is Made in USA, more than for any other nation (China is 2nd with 13%). The problem is that it takes rather few workers now to do this. The labor intensive assembly lines of fifty years ago are as dead and gone as sharecropping.
July 10th, 2009 at 11:50 pm
the issue is that our economy in hindsight was not sustainable at the level of exports currently as a % of GDP.
I don’t see that at all. Certainly something was not sustainable about our economy, but that doesn’t mean every single aspect of our economy was unsustainable.
Until we take care of middle-America and actually produce things again, we are screwed.
To elaborate on JonF’s discussion, until the recession hit, U.S. manufacturing production was continuing on its long term upward trend. As JonF also noted, the reason we nonetheless were also steadily losing manufacturing jobs is that manufacturing labor productivity has been increasing even faster than manufacturing production. And yet even as we are losing jobs, we aren’t losing wages–those are growing too.
So thanks to ever-improving manufacturing labor productivity, you have higher wages for manufacturing jobs and more total manufacturing production. But you also have fewer jobs. And I have no idea how you stop any of that from happening–you can’t force manufacturing firms to use less efficient production methods just because that would employ more people.