PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Latest Numbers Show Trade Growth

By at 6 April, 2018, 9:04 am

 

by Raymond J. Keating-

The latest monthly trade numbers from the U.S. Bureau of Economic Analysis show that the U.S. trade deficit increased in February. In fact, the trade deficit has risen notably over the last six months.

Uh-oh.

Just kidding. Relax.

Actually, the trade deficit doesn’t really matter. It’s not like the U.S. is somehow losing because our trade deficit has increased. In fact, quite the contrary. An expanding U.S. trade deficit usually is tied to stronger economic growth. As noted in a recent SBE Council analysis, a trade deficit basically is a mirror reflection of a capital account surplus, which is driven by increased foreign investment in the U.S., while also resulting from domestic economic growth generating demand for imported consumer, intermediate and capital goods.

In February, U.S. exports grew compared to January. This return to growth was welcome, given that exports had grown throughout most of 2017, and then took a step back in January.

As for imports, growth has been on the rise for the past year, including a solid increase in February.

When assessing trade data, the key is not what the trade deficit happens to be. Rather, it’s about looking at exports and imports to see if both are growing. In February, that was the case, and that’s good news for the U.S. small businesses who overwhelmingly populate the universe of exporters and importers. According to the U.S. Census Bureau, 76.2 percent of U.S. exporters have fewer than 20 employees, and 86.7 percent fewer than 50 workers.  As for U.S. importers, 75.2 percent of importers have fewer than 20 workers, and 85.5 percent fewer than 50 workers

Looking ahead, the risks come on the policy front, specifically, the U.S. moving away from free trade, and toward protectionism or an attempt by politicians and/or their appointees trying to micro-manage trade. Given the importance of trade to the U.S. economy – with total trade (exports plus imports) equaling nearly 30 percent of U.S. GDP, and the growth in total trade accounting for 44 percent of GDP growth since 2000 – the U.S. needs to replace recent protectionist impulses with a free trade agenda.

Such an agenda will fuel the positive momentum we have been experiencing in the economy, rather than re-inserting the uncertainty that small businesses had been operating under during the last Administration.

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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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