Latest Trade Data: Decline Continues to Weigh on Economic Growth

By at 8 January, 2020, 9:15 am

by Raymond J. Keating-

The latest data from the U.S. Bureau of Economic Analysis show continued deterioration in terms of those aspects of our economy tied to trade, which, of course, is significant.

U.S. exports in November inched up slightly compared to October. But exports have been riding an uneven decline since May 2018. In fact, the November 2019 level of exports stood at basically the same level registered in April 2018. So, no growth in exports for some 19 months.

Source: Federal Reserve Bank of St. Louis, FRED

Meanwhile, U.S. imports in November declined for the third straight month. Imports have been sliding since October 2018, and the November 2019 level came in at about the same level registered in November 2017 – that is, no growth for two years. By the way, imports are not economic negatives, but instead most, if not all, are inputs to U.S. businesses, including small businesses.

Source: Federal Reserve Bank of St. Louis, FRED

Total trade (exports plus imports) equates to nearly a third of the U.S. economy. Growth in trade has accounted for a significant piece of U.S. economic growth over the past four decades – more than 40 percent. So, when trade suffers, the U.S. economy suffers, which means entrepreneurs, small business, and workers suffer. Keep in mind that 87 percent of U.S. exporters and 86 percent of importers have fewer than 50 employees.

The trade policies under President Trump – imposing and threatening to impose increased governmental barriers to trade – have hurt small businesses, investment entrepreneurship and economic growth.

During the post-World War II era, real annual GDP grew at an average rate of better than 3 percent, and during non-recession years, the average topped 4 percent. The last time the U.S. had a year when growth exceeded 3 percent was 2005 (3.5 percent), which followed on 3.8 percent growth in 2004. From 2001 forward, those were the only years when growth hit or exceeded 3 percent. The last time U.S. growth hit or topped 4 percent was in 2000 and the late 1990s (4.1 percent in 2000, 4.8 percent in 1999, 4.5 in 1998, and 4.4 percent in 1997).

So, after 2006, the U.S. economy has badly under-performed. Why? Misguided government policies led to the recession that began in late 2007 – a recession that was made far deeper and lengthier due to added, major and costly policy mistakes like tax increases, new health care mandates and taxes, and other major regulatory burdens on businesses across many sectors. As a result, the subsequent recovery/expansion period fell far short of historical norms.

During the early portion of the Trump administration, some key policy positives – namely, brakes on new regulation along with significant regulatory relief, and tax cuts – improved the environment for growth, and the economy picked up from the third quarter 2017 to the third quarter 2018. But the costs and uncertainties of anti-growth trade policies became clearer – along with massive increases in federal spending – with economic growth slowing for the past year-plus.

The policy recipe for a sound growth environment is no mystery – tax and regulatory relief, free trade, and restrained government spending. Get that right, and the U.S. will exhibit consistent, strong growth.

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


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