Trade, Employment, Growth: Facts Before Stupidity

—

Trade.

Our new president opposes it, the union denies it, and the unemployed blame it. And not without reason. The United States has not performed well in terms of trade, employment and economic growth.

Let’s look at the data. Then drill down a little to the nuances. The omnidirectional rage to reduce trade deficits and increase jobs will stumble upon those nuances. Rather, the perception of economic complexity needs to be inextricably linked to bold behavior.

Let’s Take a Closer Look.

US Performance-Trade, Employment, Growth

For credibility, we look to fair and reliable sources (in all appearances). For the balance of payments, we use the Swiss ITC (International Trade Commission). For US employment, we use the US BLS, Labor Statistics Bureau. Overall economic data for each country using the World Bank.

According to the ITC, the United States accumulated an $ 820 billion commodity trade deficit in 2015, the largest deficit in any country. This deficit exceeds the sum of the deficits of the following 18 countries. The deficit does not indicate an abnormality. The US commodity trade deficit has averaged $ 780 billion over the last five years and has all been in the red for the last 15 years.

Commodity trade deficits hit major sectors. In 2015, consumer electronics posted a $ 167 billion deficit. Apparel $ 115 billion; appliances and furniture $ 74 billion. And the car is $ 153 billion. Some of these deficits have increased significantly since 2001. Home appliances increased by 427% and furniture and home appliances increased by 311%. From an import-to-export perspective, apparel imports are 10 times more than exports and home appliances are 3 times more. Furniture and home appliances 4 times.

Cars have a small silver lining and the deficit is relatively modest at 56% over 15 years, roughly equal to inflation and growth. Imports outnumber exports, which is unpleasant, but relatively 2.3 times higher.

In terms of employment, BLS reported 5.4 million losses in US manufacturing between 1990 and 2015, a 30% decrease. No one has lost a job in any of the other major employment categories. The four states in the “Belt” region have dropped a total of 1.3 million jobs.

The US economy has stumbled. Actual growth over the last 25 years has averaged just over 2%. Increasing income and wealth during that period have landed primarily in the top income groups, and the larger swaths in the United States feel stagnant and suffering.

The data portray a dire situation: the US economy suffering from a persistent trade deficit, manufacturing bleeding, and low-growth flounder. This figure shows one element of the solution, at least initially. Confront the flood of imported goods.

Added Perspective-Unlucky Complexity

Unfortunately, economics rarely succumbs to simple explanations. Complex interactions often underlie dynamics.

Now let’s Add Some Perspectives.

The United States has the largest trade deficit in commodities, but that deficit is not ranked the highest as a percentage of gross domestic product (GDP). Japan has reached about 4.5% on that basis. The UK has a commodity trade deficit of 5.7% as a percentage of GDP. India has 6.1%, Hong Kong has 15%, and the United Arab Emirates has 18%. India has grown by an average of over 6% annually over the last quarter-century, while Hong Kong and the UAE are slightly above 4%. In Turkey, Egypt, Morocco, Ethiopia and Pakistan, all about 50 countries have an average commodity trade deficit of 9% of GDP but are growing by more than 3.5% annually.

Note the term “commodity” trade deficit. Products include tangible products such as automobiles, smartphones, apparel and steel. Services-legal, financial, copyright, patent, computing-represent different groups of goods that are intangible, that is, difficult to maintain or contact. The United States has achieved a trade surplus here of $ 220 billion, the largest of any country and a significant partial offset against the commodity trade deficit.

The trade deficit also masks the total trade amount. The balance of trading is equal to exports minus imports. Certainly, imported goods are goods that are not produced in that country and have lost employment to some extent. Exports, on the other hand, represent the dollar value of what must be produced or provided, and therefore the employment that occurs. In terms of exports, the United States ranks first in services and second in commodities, with a combined export value of $ 2.25 trillion annually.

Now, we here do not prove the trade deficit in good faith or adversely affect it. But the data softens our view.

First, taking India as an example, we can see that the trade deficit does not inherently limit growth. Countries with more GDP-based deficits than the United States are growing faster than the United States. Further below, we will look at examples of countries that have trade surpluses but have not grown rapidly. Again, this eases the conclusion that growth is directly dependent on the balance of payments.

—