As reported by the Bureau of Economic Analysis (BEA) this morning (link provided above), America’s trade deficit jumped in May to $50.2 billion, easily beating the previous worst level of the Obama administration, $47.9 billion in January of this year. Since President Obama took office in January, 2009, the overall trade deficit has risen by 35%. The goods deficit soared to $64.9 billion in May (an annual rate of $779 billion), and is up by 39% since President Obama took office. Since January of 2010, when President Obama pledged to double exports, America’s overall trade deficit, the deficit in goods and the deficit in manufactured goods are up by 34%, 33% and 26% respectively. The following is a chart of the overall trade deficit since the president made his pledge in January, 2010. As you can see, I actually had to increase the scale of the y-axis this month (from -$50 billion to -$55 billion) in order for May’s deficit to register on the chart:
However, the president can legitimately claim that he is meeting his goal. Here’s a chart of exports and the trajectory they must take to meet his goal of doubling exports in five years:
But what does that matter? The problem here is that, like so many others, the president has made the classic mistake of focusing on only one half of the trade equation. Yes, increasing exports boosts jobs, but rising imports destroys them just as quickly. And, given the lack of focus on imports, it’s no surprise that they’re rising more quickly than exports, just as they have for decades. The president puts all of his focus on exports, where we have virtually no control, and completely ignores imports, over which we have total control (if we would simply return to the use of tariffs to manage the overall balance of trade). Such trade policy, which is nothing more than the continuation of the same trade policy we’ve followed since the signing of the Global Agreement on Tariffs and Trade (GATT) in 1947, makes absolutely no sense whatsoever. It’s negligent and irresponsible.
Today the president will meet with congressional leaders for the umpteenth time in the nearly year-long battle to raise the debt ceiling as they struggle mightily to identify spending cuts and revenue increases to cut the projected budget deficit by $2 trillion over the next ten years. Compare that to the cumulative goods trade deficit of nearly $8 trillion during the same time frame, and that’s if the trade deficit freezes at today’s level. Is it any wonder that we have fiscal problems? If trade in goods were balanced, the increase in revenue from the increase in GDP alone would cut the budget deficit more than $2 trillion.
With the exception of overall exports, by every other measure the president’s trade policy has been an abysmal failure. And it’s likely that even that one measure will begin to lag as the global debt crisis begins to erode the rest of the world’s ability to absorb American exports. But let’s put the blame where it really lies, at the feet of the economists who guide his economic policy. After all, Obama is just a politician, like every president before him, and takes his guidance on economic policy from a team of economists. Until the field of economics crawls out from under the rock of their early-1800s trade theories, until they uncurl themselves from the fetal position adopted in response to their beat-down by the other sciences in response to Malthus’ theory, and once again consider the full ramifications of the parameter that, by far, most dominates today’s economy – overpopulation – nothing will change, regardless of whether we leave Obama in office or replace him with someone else who takes their guidance on the economy from another team of economists.