As reported by the BEA (Bureau of Economic Analysis) this morning (link to report provided above), the July trade deficit fell to $42.8 billion from $49.8 billion in June. This is good news. Or is it?
The decline was driven by a $4.2 billion decline in imports, supplemented by a $2.8 billion rise in exports. The rise in exports can be attributed to two products – fuel oil and civilian aircraft. (That’s right, we do export some petroleum products.) The decline in imports is virtually all due to a decline in consumer goods. That would be good news if it was due to a shift toward domestic manufacturing of these goods. But it’s not. It’s due simply to a slowdown in consumer spending – bad news for the economy in general. Reducing the trade deficit is an important goal for the economy, but a recession isn’t the way to do it.
I’ve been tracking exports vs. President Obama’s pledge, made in January, to boost the economy by doubling exports in five years. Here’s an update:
As you can see, we’re beginning to fall behind on this goal. For the first time since making this pledge, exports have been below the goal for two months in a row. Of course, rising exports don’t help the economy at all if imports rise at the same rate or faster. So the real goal is to reduce the trade deficit. Let’s see how we’re doing there:
We see a nice improvement from June’s horrible performance but, aside from July, the trade deficit has steadily worsened.
During the campaign, the president promised to renegotiate NAFTA to correct inequities with Mexico. He also promised to improve our balance of trade with China by forcing them to unpeg their currency from the dollar. He’s broken his promise on NAFTA and, since he took office, the value of the yuan has actually gotten worse, falling instead of rising since China “officially” decided to let the yuan float. The president need look no further than his failure to act on the trade deficit for the state of the faltering economy and stubbornly high unemployment. If this trend continues, as it almost surely will, both the economy and unemployment are going to worsen in the coming months.