While I’m still stewing over sloppy, thoughtless reporting on U.S. trade policy, let’s look at how simply parroting the conventional wisdom on these subjects can produce seriously misleading accounts of the effects on key specific industries as well as on the whole economy. In the process, national views of the options available for strengthening the weak recovery get grossly distorted.
According to innumerable recent articles, American domestic manufacturing is slumping largely because the U.S. dollar has been on a tear, especially since spring, 2014. (See today’s version of this tale at this link.) As a result, products that are Made in the USA cost more in overseas markets than their foreign-made counterparts. No argument with that, and over the past year, American exports of manufactures have indeed fallen – by 5.3 percent.
But consistent with the nature of trade, another side of the ledger needs to be examined: imports. Just as a strong currency cuts into the price competitiveness of American-made goods abroad, it has the same effect at home. In fact, during the last year, U.S. manufactures imports rose by 2.3 percent. And this matters for growth in the sector and the entire economy because factory imports over this stretch exceeded imports by nearly one-and-a-half times, or some $400 billion.
So recapturing the U.S. industrial markets that have been lost to foreign competition clearly will reap bigger growth (and surely employment) dividends than opening new markets abroad. Moreover, it’s bound to be far easier – because America inevitably will have more control over its own economy than over those of its trade rivals. Maybe someone could tell the (supposedly) export-obsessed Obama administration?
These patterns hold when drilling down into the manufacturing data as well – and the effects on the standard media narrative are just as dramatic. Take October 23’s New York Times story on how the woes of the world’s big (predominantly third world) raw materials exporters have been hammering U.S. manufacturing exports – both because these countries have been significant customers for American industry, and because the Chinese economic slowdown largely responsible for their woes is in itself depriving domestic U.S. manufacturers of vital sales. Construction and oil and gas field equipment were naturally identified by the Times as two sectors experiencing especially big blows.
Sure enough, exports of both sets of products are off this past year – by an horrific 17.8 percent for construction equipment and by an even worse 19.9 percent for mining and oil and gas extraction equipment. The Times piece made clear that this commodity downturn also is affecting U.S. producers that buy this machinery. But it failed to observe that although American imports of the aforementioned energy-related goods during the same period sank by fully 11.4 percent, U.S. purchases of construction machinery actually rose by a healthy 9.4 percent. Interestingly, the export-to-import ratios for these categories differ significantly, too, with imports much greater than exports for construction equipment, but the reverse holding – by a wider margin – for the mining and energy machinery.
Exports are great to boost when the opportunity’s there, but the relentless growth of America’s overall and manufacturing trade deficits signals that that hasn’t been the case nearly often enough – at least not on a net basis. And the durability of this trend shows that this is the case both when the global economy is strong and when it’s weak. It’s high time, therefore, for both the media and the nation’s leaders to recognize the crystal clear story told by the numbers: When it comes to juicing growth and employment via trade, to paraphrase legendary political consultant James Carville, “It’s the imports, stupid.”