Trade Continues to Drag Economic Growth

By at 8 March, 2020, 10:13 am

by Raymond J. Keating-

The latest data for January points to trade continuing to be an economic negative coming into 2020. And it’s hard to see that improving in the near term.

The January numbers showed that exports declined in January. That came after small increases in November and December. But if we look back over the past two years, U.S. export growth has been nonexistent – actually on a slight down path – for nearly two years now. (See chart.)

Source: Federal Reserve Bank of St. Louis, FRED

As for imports – which effectively are inputs to U.S. businesses, whether they be capital goods for manufacturers or inventory for retailers – they declined in January, and have been down since October 2018.

These U.S. trade problems – which have shaved growth off of U.S. GDP – have sprung from some slowing of growth among trading partners, and the tariffs imposed by the Trump administration, which have led to retaliatory measures from our trading partners. Quite simply, increased taxes and more regulation – including when taking the form of tariffs and quotas – always lead to reduced economic activity.

As we look ahead, factoring into the equation is the impact of the coronavirus and the response among businesses and consumers. At least in the short term, trade will be further negatively impacted by the coronavirus. The question is: After the coronavirus, will trade snap back?

The answer to that should be “yes,” but if so, how much of that snap back will be restrained due to continued misguided and costly trade policies?

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


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