When U.S. Trade Suffers, the Economy and Small Businesses Suffer

By SBE Council at 9 August, 2023, 4:39 pm

by Raymond J. Keating –

The latest U.S. trade data are deeply troubling.

The first estimate of GDP (i.e., gross domestic product) for the second quarter saw real exports plunge by 10.8 percent (annualized, seasonally adjusted). For good measure, real imports declined by 7.8 percent.

The trade report from the U.S. Bureau of Economic Analysis, released on August 8, showed that the June data don’t point to any substantive upward revision in the GDP trade data. In fact, the trade report drives home the recent ills on trade.

Exports dropped slightly in June versus May, and have declined sharply since January. In January 2023, monthly exports stood at $259.1 billion, which declined to $247.5 billion in June (in seasonally adjusted nominal dollars). The same basic story has prevailed regarding imports, which again were down in June versus May, and off notably since January. Monthly imports registered $329.3 billion in January, and had fallen to $313 billion in June.

Why Trade and the Troubling Data Matter

U.S. exports represent either growing or contracting opportunities for U.S. entrepreneurs, businesses (both big and small), and workers in the global marketplace. Meanwhile, imports are not economic negatives, as many in political circles assert. Rather, nearly all imports are inputs to domestic U.S. businesses, from manufacturers to retailers.

Also, total trade (exports plus imports) registers as a significant portion of the U.S. economy, coming in at 27.2 percent of GDP in 2022. That’s up from 9.2 percent of the economy in 1960, for example.

Small Businesses Dominate Trade Across Sectors

For good measure, when talking about trade and industries, nearly all sectors are overwhelmingly populated by smaller businesses, as is the case with exporting and importing firms overall.

For example, according to the latest Census Bureau data (2020):

● 74.4 percent of employer firms in manufacturing have fewer than 20 employees, and 93.1 percent fewer than 100 workers.

● In retail trade, 90.9 percent of employer firms have fewer than 20 employees, and 98.4 percent fewer than 100 workers.

● Census Bureau data also show that among all sectors, 86.1 percent of exporters have fewer than 50 employees in 2020, and 86.5 percent of importers have fewer than 50 workers.

The bottom line is clear: When trade suffers, the U.S. economy suffers and small businesses suffer.

If policymakers are serious about getting the U.S. back on a track of strong economic growth, re-engaging the world on trade is critical. That means the U.S. must lead the way on accords that reduce governmental obstacles, such as tariffs and quotas, to trade. Make no mistake, free trade is pro-small business and pro-worker.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest books on the economy are The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist and The Weekly Economist II: 52 More Quick Reads to Help You Think Like an Economist.