July Trade Deficit Falls on Rising Exports & Falling Imports

http://www.bea.gov/newsreleases/international/trade/2011/pdf/trad0711.pdf

The trade report for July, released this morning by the Bureau of Economic Analysis (link provided above), shows that the U.S. trade deficit fell nicely in July to $44.8 billion from $51.6 billion in June.  The trade deficit in the critical category of manufactured goods also fell, but less dramatically, from $23.1 billion in June to $20.4 billion in July.  Exports of manufactured goods rose by $4.9 billion, partially offset by a rise of $2.3 billion in imports.

Still, the trade deficit remains on a downward trajectory as illustrated by the following chart of the trade deficit since Obama made his pledge to reduce the deficit by doubling exports in five years:

Balance of Trade

As shown in the following charts, the U.S. remains on track to meet his goal of doubling exports in five years, but all of the progress made there has been thwarted by an equal rise in imports.  In the category of manufactured products, where the growth in exports needs to be concentrated, results are lagging and are being offset by an equal rise in imports.

Obamas Goal to Double Exports     Manf’d Goods Balance

July’s trade results are a step forward in the one-step-forward-and-two-steps-back trade picture that the U.S. has been locked into for decades.  Obama made the same mistake that his predecessors since Truman have made before him by focusing on exports instead of imports.  Now he is paying the price in falling approval ratings while the rest of us pay the price with rising unemployment and falling incomes. 

Is there any hope for change when a new president takes office in 2013?  More on that later.

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5 Responses to July Trade Deficit Falls on Rising Exports & Falling Imports

  1. Mark Hall says:

    Pete:

    I believe that our trade deficits are actually much worse than what the numbers are showing:

    Examples as follows.

    WIDGET (A):

    Chinese Parts Cost = $ 20.00
    Mexican Parts Cost = $ 10.00
    German Parts Cost = $ 10.00
    U.S. Parts Cost = $ 50.00
    U.S. Assembly Cost = $ 10.00
    ———–
    Total Cost = $100.00

    Add 50% Markup = $ 50.00
    ———–
    Export Market Value = $150.00
    =======

    EXPORTS = $150.00
    IMPORTS = $ 40.00
    TRADE SURPLUS ($150 – $40) = $110.00
    DOMESTIC CONTENT (U.S. JOBS) = $60.00

    WIDGET (B):

    Chinese Parts Cost = $ 50.00
    Mexican Parts Cost = $ 20.00
    German Parts Cost = $ 10.00
    U.S. Parts Cost = $ 10.00
    U.S. Assembly Cost = $ 10.00
    ———–
    Total Cost = $100.00

    Add 50% Markup = $ 50.00
    ———–
    Export Market Value = $150.00
    =======

    EXPORTS = $150.00 (same as Widget A)
    IMPORTS = $ 80.00 (100% higher)
    TRADE SURPLUS ($150 – $80) = $70.00 (36% Lower)
    DOMESTIC CONTENT (U.S. JOBS) = $20.00 (67% Lower)

    WHAT DO YOU THINK?

    Thanks, Mark

  2. Mark Hall says:

    All things being equal, if our manufacturers switch from domestic made parts to foreign made parts in their final assembly process and the actual Export Market Value of the product remains the same ($150), then the total value of our exports could remain constant even though our domestic content (U.S. Jobs) is shrinking.

    • Pete Murphy says:

      Absolutely. And, in that case, while exports remain the same, imports rise, thanks to the influx of foreign-sourced parts. Are you suggesting that this might be an explanation for the rising exports/rising imports situation? It fits. No doubt, American manufacturers (what few remain) rely ever more heavily on foreign-sourced parts.

  3. Mark Hall says:

    Yes!, Yes!, Yes!

    We can “grow” exports AND still lose U.S. jobs.

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