by Raymond J. Keating-
The Bureau of Economic Analysis released its latest report on international trade in goods and services on March 7. The numbers not only provide an opportunity to get a picture on the latest trends in U.S. trade, but also to reflect on the direction of U.S. trade policy and its possible ramifications for consumers, small businesses and the overall economy.
The Latest Numbers are Poor
It turned out that the January numbers on both imports and exports were poor. On a seasonally-adjusted basis, exports in January actually declined by 1.3 percent versus December. In effect, from November to January, exports were flat. Meanwhile, imports experienced a slight decline in January, and that was after four months of growth.
Any talk of trade data and policy needs to be put in perspective.
First, consider that trade is far more important to and integrated into the U.S. economy than in the past. For example, real total trade (exports + imports) in 1955 equaled 6.1 percent of real U.S. GDP, while that grew to 29.3 percent in 2017.
Second, trade very much is about small business. The overwhelming majority of businesses involved in international trade are small firms. For example, 76.2 percent of U.S. exporters have fewer than 20 employees, and 86.7 percent fewer than 50 workers; while 75.2 percent of importers have fewer than 20 workers, and 85.5 percent fewer than 50 workers.
Third, trade has been stuck in a no-growth gear for too long. Consider that exports and imports took deep dives during the worst part of the Great Recession. Both started to recover in mid-2009. But it took two-and-a-half years for exports to climb back to their previous high, while imports took more than three-and-a-half years to do so.
After some subsequent growth, exports (See Chart 1) took another dive – falling from October 2014 to January 2016, with growth following to the end of last year. But to put this in perspective, the January 2018 level of $200.9 billion in U.S. exports was, in effect, the same level registered in October 2014 ($200.1 billion). That’s no effective growth for over three years – and by the way, these numbers do not factor in inflation, so in real terms, we’ve experienced a decline.
As for imports (see Chart 2), they declined from March 2012 to March 2013, experienced some growth in early 2014, and then went into a two-year slide. Growth resumed in mid-2016 and continued to the end of 2017 – with a particular pick up in the last four months of last year. For nearly four years, though, imports grew by only 6 percent – factor inflation into the mix and that’s a no-growth scenario.
In effect, trade moved from a vital source of growth for the U.S. economy, which, along with lackluster private investment, explains a good chunk of under-performing U.S. economic growth during and after the Great Recession.
What’s the answer to this problem?
U.S. trade policy should be returning to advancing trade, that is, reaching trade agreements that reduce governmental barriers, such as tariffs and quotas, that inhibit the ability of individuals and businesses to trade. After all, one of the key foundations upon which economic growth flourishes is freer trade.
The Trump administration has moved in a positive direction in other areas, namely, providing some much-needed business tax and regulatory relief. However, that has not been the case on trade.
Pulling the U.S. out of the Trans-Pacific Partnership trade agreement was the first misguided step, as U.S. entrepreneurs and businesses will be put at a disadvantage with TPP nations and consumers will miss out on benefits. (See SBE Council’s analysis on this point.)
Next came the renegotiation of NAFTA, which has created uncertainty among entrepreneurs, businesses and investors, and if it results in pulling out of NAFTA or undermining positive measures, such action would impose significant harm on the U.S. economy. (See SBE Council’s recent analysis on the big benefits of NAFTA for U.S. small businesses.) Certainly, areas of NAFTA can be updated – such as in the areas of intellectual property protection and enhancing data flow. Pulling out of NAFTA, however, is a very bad idea.
President Trump also has threatened to pull out of a trade agreement with South Korea. The President’s recent announcement to impose major tariffs on steel and aluminum imports would unfortunately raise costs of inputs for small businesses and hurt consumers (see SBE Council’s statement on the steel and aluminum tariffs decision). It also threatens retaliation from other nations. Europe, for example, has threatened to impose tariffs on U.S. goods in response to the U.S. tariffs, and the President, in turn, is threatening tariffs on auto imports from Europe.
None of this is constructive. It only serves to raise costs, restrict trade, reduce economic growth, and undermine U.S. entrepreneurs, businesses, workers and consumers. As already noted, trade is vital to U.S. economic well-being. The policy path is clear, i.e., step back from protectionism and a potential trade war, and instead take up the traditional U.S. role of leading on freer trade and greater economic growth.
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