A Warning Signal on Trade?

By at 10 August, 2018, 3:51 pm


by Raymond J. Keating-

According to the U.S. Bureau of Economic Analysis, the strong 4.1 percent real GDP growth rate in the second quarter of this year was fed, in part, due to strong export growth (+9.3 percent). But can we expect that to last given the impact of tariffs being pushed by the Trump administration, and the retaliatory measures from other nations?

It’s reasonable to assume that a good chunk of the second quarter’s export growth was about pulling orders forward as the threat of a trade war mounted, including, as noted by the Commerce Department, purchases by soybean buyers in China.

A warning signal might be found in the latest trade data released on August 3 by the Bureau of Economic Analysis. According to that report, after a notable jump up in May, U.S. exports in June declined.

Of course, even during a stretch of export growth, there will be an occasional month when exports take a temporary dip. And let’s hope that was the case in June. However, given the counterproductive trade policies being emphasized throughout most of this year, June’s export decline could just as easily be a troubling signal of what might be coming.

For good measure, it has to be noted that while imports actually grew in both May and June, the latest level is still down compared to February of this year. Also, according to the GDP report, in the second quarter, real import growth was a mere 0.5 percent.

And keep in mind that when the U.S. imposes tariffs (i.e., taxes) on imports that not only hits consumers immediately, but also small businesses and workers given that more than 55 percent of all U.S. goods imports in 2017 were inputs for U.S. businesses, that is, they were intermediate goods or capital goods.

Of course, trade need not be a source of uncertainty for U.S. small businesses, workers and consumers. To the contrary, if the U.S. simply reclaimed its global leadership on advancing free trade – aggressively pursuing negotiations and other trade agreements – then we would see further rolling back of governmental burdens, as has been the case in terms of tax and regulatory relief over the past year and a half, and resulting positives for economic, income and employment growth.

Protectionist trade measures mean playing a high-risk gamble with the economy, small business and jobs, with no chance for a positive payoff.


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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