Wednesday, July 21, 2010

Trade Imbalance Sucking Money, Jobs Out of US

The US trade deficit widened to $115 billion in the first quarter, or 3% of US GDP, according to the Bureau of Economic Analysis. That amounted to over a billion dollars a day.

It was the third consecutive quarterly increase. And yet this negative trend continued in May, as the trade deficit reached an 18-month high.

Typically the trade gap is blamed on oil imports. However, oil imports sank 9.1 percent to $27.6 billion as both the price and the volume of oil shipments declined.

The trade deficit continues to widen even though exports rose 17% in the first quarter. The problem is that imports continue outpace exports. This means an awful lot of money is flowing out of the United States.

The concurrent flow of imports into the US is displacing American jobs. We're buying all these foreign goods instead of making them here at home.

The trade gap creates a drag on GDP. If we could export more, we would increase GDP.

When the economy tanked in 2009, both imports and exports declined, yet the trade imbalance was more than halved. The trade deficit hadn't been that small in a decade. Now, as exports are significantly trailing imports once again, the trade imbalance has re-expanded.

Such an imbalance is simply unsustainable.

In June, Treasury Secretary Tim Geithner warned that other countries can’t rely on US consumers to propel the global economy. Given the state of US unemployment, plus consumer spending and confidence levels, that seems like a reasonable conclusion.

The reason our economy melted down in the first place was because it was built on a bubble of debt. American consumers simply cannot continue taking on ever more debt while serving as the world's primary consumer.

Our unemployment problem will lead to further imbalance.

America needs to produce more, export more, and save more. For more than a quarter-century, we did exactly the opposite. And that's exactly what we need China to do now; import more and spend more.

Our trade gap with the China is the largest of any individual country, reaching $22.3 billion in May.

Although China, Germany, Japan and the US — like all other countries — would love to be net exporters with trade surpluses, not every nation can fit that profile. Someone has to buy.

For a long, long time, that has been the US. The problem for the US is that we don't export nearly enough to continue paying for all those foreign goods.

Exports represent nearly half of Germany's GDP, 30% of Great Britain's, 28% of China's and just over 10% of US's, according to Fred Hochberg, president of the Export-Import Bank of the United States.

That's not just bad for the US; it's bad for all those nations who want — rather need — us to buy their goods. Without US exports, where will the money for all this commerce come from?

As noted, the current situation is simply unsustainable.

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