The biz media are predictably hailing the small decline in the U.S. trade deficit in October as good news for the economy, but this morning’s monthly trade report from the U.S. Commerce Department is yet one more sign that the U.S. and global economies are struggling.
The media invariably focus on the difference between imports and exports, when the real measure of trade should be the sum of the two—whether total trade is growing or slowing. In October, the trade deficit declined from September only because U.S. imports of goods and services declined even more steeply than exports. How this is good news for the American economy is beyond me.
As I documented in a study earlier this year, imports and the trade deficit typically decline when the U.S. economy is on the ropes. That’s because a drop-off in domestic demand by consumers and businesses typically translates into a drop-off in demand for imported goods and services as well as those produced domestically. Far from boosting the economy, falling imports are one of the surest signs that the economy is down shifting.
U.S. exports also declined in October, in part because of slowing demand abroad. U.S. exports are still on track to double between 2009 and 2014, a goal of President Obama’s National Export Initiative, but the rate of growth year-over-year continues to slow.
China remains a bright spot in U.S. trade, despite the complaints of politicians in Washington. U.S. exports to China continue to grow more rapidly than exports to the rest of the world. Since China joined the World Trade Organization 10 years ago this month, U.S. exports of goods to China have grown five-fold, while they have not quite doubled to the rest of the world.
China is the only major market where U.S. exports have consistently grown above the 15 percent annual rate needed to double every five years. The compound growth rate of U.S. goods exports to China since its entry into the WTO has been 18.1 percent, compared to 6.8 percent to the rest of the world. China is now the third largest foreign market for U.S. goods. Yet a large contingent in Congress wants to slap tariffs on Chinese imports because of its currency practices that supposedly hinder U.S. exports.
In the business world, picking a needless trade fight with one of your best customers would be the height of folly. For many members of Congress, it has become an urgent item on their legislative agenda.