PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Good News on Trade

By at 8 January, 2018, 11:06 am

by Raymond J. Keating-

Through the first 11 months of 2017, according to the latest report on international trade from the U.S. Bureau of Economic Analysis, exports and imports expanded. That’s good news for the U.S. economy.

In November 2017, U.S. exports took a nice jump higher, after a slight decline in October. Through the first 11 months compared to the same period last year, exports grew by 5.6 percent. That’s a welcome shift after declines in both 2015 and 2016 – pointing to expanding opportunities for U.S. entrepreneurs, businesses and workers.

As for imports, they also expanded in November of last year – making the third straight month of growth. Through the 11 months of 2017, U.S. imports were up by 6.7 percent versus the same period in 2016. That marks a significant change from the declines experienced in both 2015 and 2016.

It also turns out that the monthly trade deficit widened in November, from $48.9 billion in October to $50.5 billion, and the year-to-date trade deficit expanded as well, growing from $460.2 billion in 2016 to $513.6 billion in 2017.

Should this larger trade deficit generate worry and push protectionism forward?

Absolutely not. To the contrary, an expanding U.S. trade deficit usually means that the U.S. economy is growing. After all, as the domestic economy grows, individuals and businesses buy more imports, while foreigners also step up their investments in the country.

As SBE Council has noted before:

“In fact, a surefire way of shrinking the U.S. trade deficit would be a U.S. recession, as occurred during the 2007 to 2009 recession. Why? Two reasons.

“First, a current account trade deficit (i.e., a deficit in terms of goods and services) coincides with a capital account surplus (i.e., a surplus in terms of investment moving into and out of the U.S.). That’s a good thing in that foreigners are investing in the U.S.

“Second, a growing U.S. economy means consumption increases and businesses are increasing purchases of, for example, capital goods, leading to increasing imports. And given the size of the U.S. economy and the relative wealth of Americans, an overall trade deficit and deficits with certain individual nations are not unexpected, and … do not reflect some kind of unfairness at work.”

Growth in exports and imports are positives for the U.S. economy, including for small businesses, especially given the fact that most U.S. exporters and importers are small firms.

According to U.S. Census Bureau data, 86.7 percent of U.S. exporting firms have fewer than 50 workers and 91.9 percent less than 100 employees; while on the import side, 85.5 percent have less than 50 workers, and 90.8 percent less than 100 employees.

Pro-growth policies, such as the business tax reforms signed into law at the close of 2017, and advancements being made and hopefully expanded in terms of regulatory relief and reform, will incentivize entrepreneurship and investment, enhance productivity, and boost economic growth, and in turn, we should expect to see an expanding trade deficit. But in the end, the trade balance really doesn’t matter.

What does matter is to implement policies that keep both exports and imports growing, and that not only includes tax and regulatory relief, but also having the U.S. end its recent flirtations with protectionism, and instead, reclaim its global leadership role in advancing free trade accords that reduce governmental obstacles to international trade.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP:  The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.

 

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