Poor Economy Reflected in Latest Trade Data

By at 6 May, 2020, 11:53 am

by Raymond J. Keating-

May is World Trade Month, but unfortunately, given the effects of the coronavirus pandemic, this is not a good time for trade. That is made clear in the latest monthly trade statistics from the U.S. Bureau of Economic Analysis.

Given the relative meaninglessness and the danger of how it can be misinterpreted by policymakers, the fact that the BEA leads each month’s report on trade with the size of the U.S. trade deficit continues to bewilder me. But when we look at what does matter, that is, the level and growth in exports and imports, the numbers for March were grim.

Exports in March declined by 9.6 percent compared to February. Exports, of course, already had been struggling given protectionist trade policies being imposed and threatened, and had declined in the previous two months and were down since the high hit in May of last year. (Note: This trade data is not adjusted for inflation.) But the major falloff in March meant that exports registered their lowest level since November 2016. What is even more distressing is that the March 2020 level of U.S. exports of goods and services ($187.7 billion) effectively came in at the same level as was registered in May 2012 ($186.4 billion). That’s eight years of no growth in U.S. exports (again, factor inflation in and exports have declined).

And imports in March dropped by 6.2 percent. Imports also had been suffering, as March marked the third straight month of declines, and imports were off from their recent May 2019 high. But, again, the decline in March was so significant that the March level of U.S. imports was the lowest, again, since November 2016.

For good measure, monthly imports in March 2020 ($232.2 billion) came in at effectively the same level as in April 2012 ($232.3 billion). Even worse, the March 2020 level also was the same level of imports as in July 2008 ($232.2 billion) – and, again, a decline once inflation is factored into the data. Imports largely are a reflection of domestic economic growth, as stronger growth leads to increased imports.

Indeed, when you look at the under-performing economic growth the U.S. experienced during the Great Recession and the subsequent recovery/expansion period right into early 2020, trade served as a drag on growth. That was, in part, due to the Obama administration’s moving to the sidelines and abandoning U.S. leadership in advancing free trade, and then the Trump administration’s completely flipping to pushing for protectionist trade measures.

Remember that nearly all imports into the U.S. serve as inputs to some kind of U.S. businesses, such as retail and manufacturing, and those businesses overwhelmingly are small-to-mid-size enterprises. In addition, when discussing trade and trade policies, it’s important to keep in mind that countries don’t trade with each other, rather individuals and businesses trade with each other. That is made clear in the BEA’s definition attached to this monthly report:

“Trade in goods and services between U.S. residents and residents of other countries each month.”

Unfortunately, the ills of poor trade policies in recent years were bad enough, but now they are being grossly magnified by the coronavirus effects. As we look ahead, the U.S. will need to lead the world back to strong growth, and that will require embracing and advancing pro-entrepreneur, pro-investment, pro-growth trade policies. That is, remove governmental obstacles to trade, so free enterprise can flourish.

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


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