Trade figures released by the Bureau of Economic Analysis this morning (link provided above) reveal that the nation’s trade deficit rose again in December, to $48.8 billion, from $47.1 billion in November. The rise was primarily driven by a $2.7 billion increase in the deficit in manufactured products. A $0.6 billion increase in exports of manufactured products was swamped by a $3.3 billion increase in imports of manufactured products. The monthly trade deficit continues it’s downward spiral. Here’s the chart: Balance of Trade.
For the year as a whole, the news is worse. The trade deficit soared by almost 12% to over $558 billion in 2011. Exclude services and narrow it down to the far more important category of goods, and the news is even worse. In 2011, the goods trade deficit grew by 14% to $737 billion. That’s almost 50% higher than 2009’s total of $506 billion. Not coincidentally, the federal budget deficit is projected to be $1 trillion this year – just enough to offset the goods trade deficit, which is also likely to grow further this year.
In January of 2010, vowing to revitalize the manufacturing sector of the economy, the president set a goal of doubling exports within five years. Now exactly two years into this goal, let’s take a look at how we’re doing. Here’s the chart: Obamas Goal to Double Exports. Exports lagged the goal for the fifth consecutive month, and by the widest margin in December, by $8.5 billion – almost 5%.
But what good has it done for American workers if that export goal is met by opening the spigot a little further on oil exports, or by throwing a few more bushels of grain into the holds of a cargo ship? (Believe it or not, American oil exports soared to a new record of $10.64 billion in December.) The real goal is to double exports of manufactured goods. That’s where the jobs are. And, in this category, the lag behind the president’s goal is even worse. Here’s the chart: Manf’d Goods Balance. Exports of manufactured goods lagged the goal for the 8th consecutive month, and by the widest margin in December – $12 billion or 7%.
None of this is any surprise, because the president’s focus on doubling exports in order to restore a balance of trade is completely misplaced. We have no control over exports. Exports are driven by foreign demand. We can’t change that demand by competing harder. Our foreign competition works just as hard to improve their competitiveness. You can’t compete your way out of a trade deficit that is driven not by a lack of competitiveness (after all, we’re already the most productive nation on earth) but by the inverse relationship between population density and per capita consumption. The only way to restore a balance of trade, returning jobs for manufacturing products for domestic consumption, is by focusing on imports, and the only way to control imports is through tariffs.
Denial of this economic reality and attempting to gimmick our way out of it only dooms our economy to another recession as deficit spending will be unable to keep pace with the worsening trade deficit. This is the main reason I remain pessimistic about the prospects for the economy this year.