PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Slower Trade Growth Impacts U.S. Economic Growth

By at 18 April, 2019, 7:28 am

 

by Raymond J. Keating-

According to the latest release from the U.S. Bureau of Economic Analysis, international trade continues to be a major question mark for the U.S. economy.

In February 2019, both U.S. exports and imports inched ahead. Unfortunately, the trend over the past eight months regarding exports has been generally down, with the same being the case with imports for the most recent four months.

Indeed, a troubling slow-growth trend on the trade front seems to be getting worse.

Consider that post-World War II, real U.S. exports grew at an annual average rate of 5.1 percent, and imports by 6.1 percent. That compares to average real U.S. GDP growth of 3.2 percent annually.

However, the last time that U.S. annual export growth beat that post-WWII average was in 2011, and 2010 was the last year that import growth beat the historic average. But both of these were affected by the steep drop in trade during the Great Recession. So, the last time the U.S. had better-than-average real growth, free from the effects of recession, was in 2008 for exports and 2006 for imports. So, we are stuck in an extended period of sluggishness on trade.

This trade slowdown matters because trade matters a great deal to the U.S. economy and U.S. growth.

Consider that in 1955, for example, U.S. real exports as a share of real GDP came in at 2.8 percent, imports at 3.6 percent, and total trade (exports plus imports) at 6.3 percent.

As of 2018, exports had risen to 13.7 percent of our economy, imports to 18.6 percent, and total trade to 32.3 percent.

So, just about one-third of the U.S. economy is directly tied to trade. Of course, that impact expands further when one considers how those exports and imports effect other parts of the economy.

As for economic growth, from 1980 to 2018, for example, the growth in real total trade equaled 41.2 percent of real U.S. economic growth.

International trade matters to the U.S. economy – to U.S. entrepreneurs, businesses of all types and sizes, workers and consumers – more so than at any time during our history. Therefore, it is critical that the U.S. get trade policy right. That means pushing aside counter-productive tariffs and quotas that raise the costs of trade and generate retaliation among our trading partners; and instead, reclaiming U.S. global leadership in lowering barriers to trade.

After all, true free trade is about lowering or eliminating governmental barriers – such as tariffs (i.e., taxes) and regulations (including quotas) – so that individuals, entrepreneurs and businesses can trade, experience greater choices and savings, and seize on new opportunities.

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

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