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Many link the whopping trade deficit to ''job-killing'' imports. Actually, the numbers show such a connection doesn't exist
Published on Monday, May 12, 2008
The thinking often is that the trade imbalance reflects a surge of imports triggering jobs losses in this country, Americans purchasing foreign goods at the expense of their neighbors. Is the analysis correct, the larger the trade deficit the greater the number of shuttered plants and factories?
Doug Karmin of the Progressive Policy Institute and other economists point to persuasive evidence that reveals the answer is no. They have tracked unemployment data and report that higher imports and a larger trade deficit usually coincide with a declining jobless rate. That makes economic sense. A robust economy means the American market is more attractive for importers, American consumers in a strong position to purchase foreign goods.
Tellingly, Karmin highlights the five years between 1960 and 2001 when imports decreased in value (1961, 1975, 1982, 1991 and 2001). Each instance occurred during a recession, when the level of unemployment increased.
On Friday, word arrived that in March, the trade deficit narrowed due to lower demand for imports.
None of this should be seen as diminishing the plight of workers and companies struggling through a profound economic transition. Their difficulties require an enlightened response that has less to do with particular trade policies and more to do with achieving universal health care, adjusting public investment and devising a more equitable tax code and improved pension policies. What shouldn't be missed is that the whopping trade deficit tells us something else about the shape of the national economy.
Put simply, Americans do not export enough to cover the cost of the imports all of us purchase. That argues for expanding access to foreign markets, Americans selling more goods abroad. More, it signals that Americans have been spending beyond their means, and thus the country must borrow money from overseas, from the Chinese, for instance, to make ends meet. The American thirst for oil has played a large role in driving the size of the trade deficit, especially as gasoline prices have soared.
Americans should be worried about relying too heavily on foreign creditors (though those creditors have a huge stake in American prosperity). In that way, they should find the trade deficit disturbing.
What can be done? Here is another realm in which reducing the country's consumption of foreign oil would reap benefits. Equally sound would be increasing the country's savings rate, most notably, by addressing the federal budget deficit (an altogether different imbalance) and taking steps to encourage individual savings. So, yes, target the trade deficit. Just do so for the right reasons.
Get the full article here.
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