Today's trade numbers can be explained away but they shouldn't be ignored. The dramatic trade deficit undercuts the meme that America is an export powerhouse now.
The trade deficit rose to $51.4 billion in March, a rise of 43.1 percent. It was the worst showing in more than six years and the highest percentage jump since December 1996. This is how much more we buy from the world than we sell to the world.
Some aspects of this report are one-offs. For example, the end of the West Coast ports dispute helped stoke a rise in imports. Don’t overestimate this, however. Major retailers, for example, anticipated trouble late last summer and stocked up early. Some aspects are being explained away, as in, we may have contracted in the first quarter but services will come back strongly.
There is the problem/blessing of the strong U.S. dollar. Problem in that it makes our exports more expensive, while some of our biggest trading partners manipulate their currencies to enhance their export-driven economies. The blessing is the dollar remains the world’s reserve currency and our limitless credit card. One thing for sure: Based on today’s report — and the data are even more serious when petroleum is removed — the Federal Reserve won’t be in a hurry to raise interest rates.
Here’s a look at the overall trade deficit over time:
It might be too simplistic to note that the deficit really goes south as NAFTA kicks in, then gains momentum as China joins the World Trade Organization. It is not as if the United States doesn’t export. Indeed, until recent years we were the world’s largest exporting nation. And exports have grown since the Great Recession:
But our appetites to consume imported stuff outweigh our ability to produce and sell. Here’s the net result:
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As you can see, until the mid-1970s the United States trade account was more or less in balance. This metric alone doesn’t mean much. But the emergence of a persistent and then dramatic trade deficit coincides exactly with the stagnation and erosion of wages for most working Americans.
Has the ability to buy lots of cheap stuff from overseas offset this situation? Inequality rising to levels not seen since at least the eve of the Great Depression would say, no. Also, most families have had to add a wage earner and go into debt in an attempt to maintain the purchasing power they once had.
The trade deficit alone doesn’t mean much in the abstract. But in real life, it has meant the loss of large numbers of manufacturing jobs and contributed to the erosion of the middle class. No, not in Washington state. But we might not be so complacent were it not for Boeing.
Whatever next month’s trade deficit numbers, we face a permanent problem, and one that can’t be fixed by managed-trade agreements. Perhaps that’s necessary for global peace and the profits of transnational companies. But we haven’t found how to help the millions being left behind. It is a question of particular importance as President Obama tries to sell the largest managed-trade deal yet, the Trans-Pacific Partnership.
Today’s Econ Haiku:
She’ll do for America
The same as H-P