June Trade Deficit More Evidence of Pain in American Economy

 

http://www.bea.gov/newsreleases/international/trade/2009/pdf/trad0609.pdf

On Wednesday, August 12, the Bureau of Economic Analysis (BEA) released the June balance of trade figures.  The above link will take you to the full report.  The U.S. balance of trade is by far the most important economic data tracked by the federal government, with more influence on the financial well-being of Americans than even GDP (gross domestic product). 

As usual, the report is a mix of good news and bad news, more heavily weighted to the latter.  The good news is that, at $27.0 billion, the June trade deficit remains at far lower levels than just a year ago.  The bad news is that it’s up from $26.0 billion in May.  The really bad news is that $27.0 billion per month is still an enormous deficit.  It’s this trade imbalance that ultimately led to the global financial collapse last year, a financial collapse that would surely have yielded a severe depression were it not for the shaky, jury-rigged, hastily-constructed financial scaffolding that now props up our economy.

The table in this report that really tells the story is “Exhibit 9” found on page 11.  There we can see that petroleum imports were a huge drag on the deficit, worsening by $3.9 billion from May to June.  But it’s the non-petroleum goods that interests me most, because that’s the category that essentially is made up of manufactured products – the real job engine of the economy.  The good news there is a reduction of $2.6 billion in the deficit.  Exports in that category rose by $1.6 billion, while imports fell by $1.0 billion – both moves in the right direction.  And imports of non-petroleum goods fell to a decade low. 

But is this really a measure of any real correction in the trade imbalance – a shift back to domestic manufacturing – or is it merely a measure of just how badly Americans are hurting?  Data on retail sales and on manufacturing don’t support an explanation that Americans are turning to domestically-manufactured products.  And while the June rise in exports from May is nice, exports are also hovering near decade lows. 

The Obama administration has focused virtually all of its efforts to improve our balance of trade on China, constantly driving home the point with China that they must begin to boost their own economy and rely less upon America as an export market.  Predictably, this approach is an abysmal failure.  Our deficit with China rose from $17.5 billion in May to $18.4 billion in June.  And, as proof of the point that I constantly try to drive home in this blog – that our trade deficit is the result of our own failed trade policy and not anything in particular that China is doing – our trade deficit with Japan nearly doubled from May to June, rising from $1.9 billion in May to $3.7 billion in June.  (Almost all of that rise was due to a boost in auto imports.) 

The evidence seems to suggest that the trade deficit remains low (though it’s bottomed out and seems to be rising again) because Americans, whose incomes continue to decline, have snapped their wallets shut.  Improvements in our trade balance are great, but ruining the economy is no way to go about it.  No fundamental improvement can take place until the administration addresses our trade policy in a way that restores domestic manufacturing.

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6 Responses to June Trade Deficit More Evidence of Pain in American Economy

  1. Mark A. Hall says:

    Pete,

    For the month of June 2009, the total U.S. non-energy trade deficit was $20.47 billion.

    For the month of June 2009, the U.S. non-energy trade deficit with China was $18.44 billion.

    Therefore, China ALONE accounted for 90.0% of the total U.S. non-energy trade deficit for this month.

    Since no other global economic power allows just one country to contribute such a negative impact to their overall economy, does China now pose a “clear-and-present-danger” to the prosperity, security and ultimate survival of the United States?

  2. Mark A. Hall says:

    China has also been making the headlines lately with regard to their vast holdings of U.S. Treasuries.

    THEY HAVE BEEN UNLOADING THEM!!

    It appears that the Chinese have a better sense of direction and insight toward the declining direction of the U.S. economy than our own government.

    As evidenced by their investments in other countries, they seem to realize that their U.S. market is broke and nearly played out, so they are now on the prowel for more fertile foreign markets to expand their World Domination.

    • Pete Murphy says:

      Mark, regarding your comment on the Chinese dumping their holdings in U.S. treasuries, I was actually thinking of doing my next post on this subject. What’s interesting about it is that, contrary to the hand-wringers who said we can’t piss off the Chinese with protectionist trade measures because they’ll dump their treasuries and drive interest rates through the roof, it isn’t happening! While the Chinese dumped a lot of treasuries last month, interest rates actually came down slightly because other foreign demand for treasuries more than picked up the slack. This supports my contention that any moves that would tend to restore a balance of trade will have little effect on interest rates because it will tend to drive the value of the dollar much higher, making U.S. treasuries more attractive, not less.

  3. ClydeB says:

    I know it is only anecdotal, but as I talk with folks, the subject of buy American regularly and frequently comes up. We can’t change things very much, one at a time, but without a start, we will never change.
    I watched a TV show yesterday where the participants were all small business owners. The common thread in their complaints was the lack of available money to borrow. One highly successful restaurant owner has firm plans to expand with an additional restaurant that would have a payroll for about 225 people but can’t move on due to lack of financing.

    • Pete Murphy says:

      I love anecdotal evidence, Clyde. The lack of available credit is a real problem that has its roots in our trade deficit. Americans’ bank accounts, the traditional source of capital for credit, have been drained by the trade deficit as Americans have struggled to maintain their standard of living in the face of falling incomes. We’ve traded savings and real capital for an ocean of debt that finally became unsustainable. It won’t get better until the trade deficit is eliminated.

  4. Mark A. Hall says:

    Pete,

    You have me convinced….

    How are you at goat roping?

    The Japanese appear to know where their best market is and who is keeping them safe from the North Koreans. They are buying our Treasuries…

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