What had been a recurring story line buried in the business pages has now burst onto the front page: “Economic growth slowed by trade gap,” the Washington Post reports this morning in an above-the-fold headline.
The lead sets the stage for a story long on generalizations: “A widening U.S. trade deficit has become a substantial drag on economic growth as the country's exports struggle to keep pace with the swelling sums that Americans are again spending on imported goods.”
The half truth in the story line is that exports fell by $2 billion in June compared to the month before, and that this has a negative effect on overall GDP growth. In our more globalized world, the rising wealth of our trading partners translates into more production in our own economy, and vice versa.
The fatal flaw of the story line (as I tackled recently here and at greater length here) is that it assumes that rising imports slow economic growth. That assumption, in turn, rests on a simplistic Keynesian view that if a portion of domestic demand is satisfied by spending on imports, that means less demand for domestically produced goods, thus less output and lower employment.
That view neglects the supply-side role of imports. More than half of what we import consists of goods consumed by producers—capital machinery, raw materials, parts and other intermediate inputs. Those imports help us produce more, not less. The Keynesian view also confuses cause and effect: Imports usually grow in response to RISING domestic demand. Consumers more eager to spend “swelling sums” on imports typically buy more domestically produced goods as well.
The bean counters at the Commerce Department “subtract” imports from GDP, not because those imports are a drag on growth, but to avoid double counting. If we want to count the number of widgets and other goods added to the economy in a quarter, we would obviously not count those that have been imported. But this does not mean the economy would have been that much larger if the widgets had not been imported.
What explains the chronically misleading depictions and interpretations of international trade in the Washington Post? Is it economic illiteracy? Intellectual indifference? Institutional bias? What?
The opening paragraph in Neil Irwin’s story (online, July 30, 2010, 9:13 am) reads:
The pace of economic growth slowed this spring, according to new government data, as Americans remained reluctant to consume and imports soared.
And a few paragraphs later:
The biggest drain on growth was imports, which rose 28.8 percent, compared with only a 10.3 percent gain in exports.
On July 14, one day after the Commerce Department’s monthly trade figures were released, revealing a slight increase in the trade deficit, the opening paragraph in the Washington Post story under the heading “Rising Imports Offset Export Gains” read:
Read the rest of this post »
America’s resurgent appetite for imports may undermine the Obama administration’s efforts to rekindle job growth, with a rise in overseas purchases by American businesses and households undercutting the benefits of increased U.S. sales abroad.
A conversation with documentarian Robert Stone regarding Earth Day is featured today in The New York Times’s “Dot Earth” online column. In the course of his conversation with the Times’s Andrew Revkin, Mr. Stone — who is quite alarmed about our reliance on foreign oil — asks: “How many Americans know that we send about $800 billion to the Middle East every year for oil?”
Hopefully, not many. According to the U.S. Department of Commerce, the U.S. spent $95.4 billion on crude oil imports from OPEC sources in 2009. But not all OPEC members are from the Middle East. That $95.4 billion includes dollars spent on oil originating from Algeria ($6.3 billion), Angola ($9 billion), Ecuador ($3.4 billion), Nigeria ($17.7 billion), and Venezuela ($23.4 billion) — none of which are in the Middle East. Subtract out that oil and we arrive at $35.6 billion spent on Middle Eastern crude oil (a figure rounded from the original nominal counts. I have used the customs value — that is, the estimated value — of the oil being imported rather than the figures that include additional costs for insurance and transportation because money being spent on insurance and shipping goes to third parties that are not for the most part located in the Middle East. But if one wants to use those slightly higher figures, it won’t change the numbers very much at all).
For what it’s worth, the total amount of dollars Americans sent abroad for crude oil from all sources was $188.5 billion last year.
Even if the figure were $800 billion, so what? No one is forcing refineries to buy crude oil from foreign suppliers. They presumably believe that the oil at issue is more valuable than the money that must be offered to secure said oil and that oil from other sources is more expensive than oil from the Middle East. Hence, they buy. This is by definition a wealth creating transaction for American business enterprises. Foreign trade, Mr. Stone, is a good thing.
The implicit claim, of course, is that there are negative externalities associated with foreign oil consumption. This, however, is faith masquerading as fact (an argument also well made by Cato adjunct scholar Richard Gordon).
Regardless, Mr. Stone overstates the alleged problem by orders of magnitude.
The U.S.-China Business Council has performed a valuable public service by marshalling state‐by‐state figures on exports to China. In its annual survey, released this morning, the USCBC documents that 19 states exported $1 billion or more in 2009 to China, which is now the third largest market for U.S. exports.
In a statement accompanying the report, the USCBC noted that exports to China declined only slightly in 2009, compared to a 20 percent plunge in exports to the rest of the world. Top U.S. exports to China last year were computers and electronics, agricultural products, chemicals, and transportation equipment.
The USCBC figures tend to undercut complaints that China’s currency policies have stymied U.S. exports to that country. In fact, as I argued in an op‐ed in the Los Angeles Times last week, since 2005, U.S. exports to China have been growing three times faster than our exports to the rest of the world.
There is agreement across the spectrum that the Chinese government should continue to move toward a more flexible, market‐priced currency. But the export numbers do not give any support to the critics who want to threaten sanctions against China. In fact, as I concluded in my op‐ed:
If the Obama administration hopes to double U.S. exports in the next five years, as the president announced in his State of the Union address, it should praise China for its growing appetite for U.S. goods and services, not threaten it with trade sanctions. Any company hoping to double its sales in the next five years would be foolish to pick a needless fight with one of its best customers.
- Now that the health care bill is law, you should know exactly how it’s going to affect you, your premiums, and your coverage over the next few years. Here’s a helpful breakdown.
- As the health care overhaul crosses home plate, global warming legislation steps up to bat.
- Appreciate this: Chinese currency rise will have a negligible effect on the trade deficit. For more, read the whole paper.
From Franklin Delano Roosevelt's New Deal to Joe Biden's Big F-ing Deal, progressives have led a consistent and largely successful campaign to expand the size and scope of the federal government. Now, Matt Yglesias suggests, it's time to take a victory lap and call it a day:
For the past 65-70 years—and especially for the past 30 years since the end of the civil rights argument—American politics has been dominated by controversy over the size and scope of the welfare state. Today, that argument is largely over with liberals having largely won. [...] The crux of the matter is that progressive efforts to expand the size of the welfare state are basically done. There are big items still on the progressive agenda. But they don’t really involve substantial new expenditures. Instead, you’re looking at carbon pricing, financial regulatory reform, and immigration reform as the medium-term agenda. Most broadly, questions about how to boost growth, how to deliver public services effectively, and about the appropriate balance of social investment between children and the elderly will take center stage. This will probably lead to some realigning of political coalitions. Liberal proponents of reduced trade barriers and increased immigration flows will likely feel emboldened about pushing that agenda, since the policy environment is getting substantially more redistributive and does much more to mitigate risk. Advocates of things like more and better preschooling are going to find themselves competing for funds primarily with the claims made by seniors.
I'd like to believe this is true, though I can't say I'm persuaded. It seems at least as likely that, consistent with the historical pattern, the new status quo will simply be redefined as the "center," and proposals to further augment the welfare state will move from the fringe to the mainstream of opinion on the left.