Friday, February 9, 2018

Rising trade deficit the latest reminder of the pre-Great Recession economy

Wanted to go over an economic report that came out this week that didn't seem to get a lot of play, but gives another bit of evidence that our economy continues to have resemblances to the mid-2000s. And even more noteworthy is that it shows that Donald Trump's "America First" talk isn't matching what's going on overall.

The report was the monthly balance-of-trade report from the Bureau of Economic Analysis, and it not only featured December's figures, but the preliminary year-long figures for 2017. And both the monthly and annual numbers showed a trade deficit on the rise.
The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that the goods and services deficit was $53.1 billion in December, up $2.7 billion from $50.4 billion in November, revised. December exports were $203.4 billion, $3.5 billion more than November exports. December imports were $256.5 billion, $6.2 billion more than November imports.

The December increase in the goods and services deficit reflected an increase in the goods deficit of $2.6 billion to $73.3 billion and a decrease in the services surplus of $0.1 billion to $20.2 billion.

For 2017, the goods and services deficit increased $61.2 billion, or 12.1 percent, from 2016. Exports increased $121.2 billion or 5.5 percent. Imports increased $182.5 billion or 6.7 percent.
This means that imports rose to an all-time record for 2017, and exports also rebounded in America after two years of declines.

Those figures would be expected with a US and world economy that continued to grow in 2017. And locally, Wisconsin Republicans touted the state's increased overseas sales as proof that things were going well at the state level.

And the $22.3 billion in Wisconsin exports cements trade as an important part of WIsconsin's economy. But when the country's exports grew by 5.5% overall, it simply means Wisconsin was joining in the increase that much of the rest of the nation saw. In fact, this article from the Milwaukee Business Times says that the 6.1% increase only placed Wisconsin 26th of the 50 states for export growth.

On the flip side, the state's trade deficit grew at a notably faster rate than the rest of the US.
Wisconsin’s imports were also up, increasing $5.3 billion or 23.6 percent to $27.8 billion. The state’s increase was the fourth largest in the country but Wisconsin remained 22nd for total imports.
And let's take a minute to talk about overall trade deficits, because 2017 wasn't just a rebound from a couple of stagnant years in this front- it represented the largest trade deficit since before the Great Recession, and December's deficit was the largest in any month since before the 2008 financial crisis shut down trade.

Wisconsin Congressman Mark Pocan noted the increased deficit in 2017 didn't exactly match up with President Trump's campaign talk about "getting tough on trade".

Realistically, we shouldn't be too surprised by this jump in the trade deficit. After all, the US savings rate has plummeted back to pre-Recession levels, and given that people are consuming so much, it seems natural that some of that would come from overseas.

Now the question is whether this trade deficit is a bad thing, and a sign of bad things to come? I'm not as sanguine about free trade as the typical Econ person tends to be, because I do think that corporations have abused low tariffs by allowing it to be a reason to offshore jobs and cut wages in America while grabbing major profits for themselves. But it is noteworthy that manufacturing employment has risen by 186,000 in the last 12 months measured, which was a nice reversal from the drops we saw last year. So at least that part of Trump's big talk is holding up, even if our trade deficit is widening (FYI, the goods deficit rose by $58 billion in 2017 to a total of $810 billion).

But the catch-22 is that one major way to encourage exports is to lower the value of dollar (which did drop in 2017 vs many overseas currencies). And that'll raise the prices of those imports that we keep buying more reliant on. Combine that with the return of $1 trillion fiscal deficits (especially after this last budget deal), and you've got a situation that causes interest rates to keep going up, making a crash of our Bubbly assets even more likely.

Like a lot of other things we've seen in recent months, just because our trade deficit is on the rise, it doesn't mean a disaster is imminent (even with the craziness in the stock market over the last 2 weeks). But the resemblances to the 2nd term of George W. Bush are quite remarkable, and we'd be crazy not be concerned about seeing the economic awfulness of the Aughts repeating themselves.

1 comment:

  1. On top of the unfortunate rise in imports, another major problem we have is spreading wealth, opportunity and success more equally across America. One of the largest political failures of all parties in the US in the past few decades is how to tackle what is ultimately causing the most strife and tearing people apart due to not only the wealth gap but also the large gap in opportunity between the very largest metro areas and nearly all the others. It's important to note that most states in this country don't have metro areas larger than 250,000 people, let alone 1 million residents. If 75% of job growth and opportunity is in the few largest metro areas, that's a problem because 75% of the public doesn't live in those areas. Many of us today need to start asking what's being done or planned(if anything) to spread jobs, wealth and opportunity to the country as a whole and to help avoid having such a huge gap from one region of the country to the next. Any political party that wants to win should be taking this problem VERY seriously because if the problem is allowed to continue like it has for quite some time, the entire country could be at risk from becoming very unstable financially and the majority of people living in the poverty will ultimately have the power to vote in ways that ultimately have the ability to make life tough for all the unfairly advantaged areas. The misery will be spread around to everyone, not just politically but in many other ways that we may not be able to even comprehend at this point as the wealth and opportunity gaps were not so severe...according to graphs in this article I just read, the problem has become far worse even since just 2010:
    I really don't see the nations situation improving much until this problem is seriously addressed not just by politicians but companies and wealthy individuals as well.