I’m continually grateful to Bloomberg BusinessWeek’s Peter Coy for his interest in my tracking of the manufacturing trade deficit, and in particular, how it keeps setting new records — the latest being reported yesterday morning. In fact, his coverage contrasts especially favorably with that of manufacturing-focused publications and websites themselves. They devote no attention to these figures at all, even though if what we think we know about international trade is remotely on target, surging trade shortfalls are signalling dismal and perhaps worsening global competitiveness for domestic industry.
So I was a little disappointed to see Peter’s post also repeated the conventional wisdom about the dreadful overall U.S. trade figures released yesterday, and how they mainly reflect clearing up West Coast ports backlogs that are temporarily and unnaturally boosting import numbers.
There’s no doubt that the ports improvement juiced the import number — and helped it rise by a record 7.70 percent month-to-month in March. But trade goes two ways, remember? Exports headed abroad through West Coast ports were clogged up, too. Certainly manufacturers and especially farmers and ranchers had been complaining about their reduced or threatened access to Asian markets in particular. So has Commerce Secretary Penny L. Pritzker. Yet the improving West Coast ports situation only resulted in a 0.88 percent monthly rise in U.S. overseas sales.
Nor does the strong dollar – whose recent weakness is also touted as a reason for optimism about future trade flows and their impact on growth – explain adequately why the latest trade figures showed imports rising nearly nine times faster than exports. The exchange rate argument is especially inadequate at a time when the American economy expanded so much more slowly in the first quarter.
Although yesterday’s stunning export-import growth disparity will probably moderate going forward, there’s absolutely no reason to believe it will vanish, or even improve significantly. Indeed, the latest trade figures should remind us that enormous structural differences exist between the United States and its main trade partners, and that among their leading effects has been making America much more open to imports than they are.
Therefore, until these structural differences are reduced to some meaningful extent, as long as the U.S. economy keeps growing at all, we can expect the trade deficit to keep increasing, to keep slowing that growth, and to keep it ever more dependent on accumulating debt. Worse, the faster deterioration of the trade deficit impacted most by trade deals and related policies — the non-oil goods deficit — makes clear that current trade policies and the agreements being negotiated now have been part of the problem, not part of the solution.
The Federal Reserve has taken the habit of describing adverse trends it hasn’t predicted as stemming from “transitory” factors — one big reason that it has stuck with a super-easy monetary policy that at best has been yielding ever less impressive results. Yesterday’s coverage sadly indicates that such hopium — and denialism — is now characterizing the conventional wisdom on trade.