Trade Report Raises More Questions on the Economy

By SBE Council at 4 October, 2023, 4:37 pm

by Raymond J. Keating – 

While entrepreneurs, businesses and their employees, and investors continue to push our economy forward, policymakers often seem to be working against such efforts. Indeed, it can appear that the Fed, Congress and the White House are actively working against the private sector. Of course, misguided and costly policies – along with threats to impose additional and significant costs – undermine and raise questions about our economy.

The latest “U.S. International Trade in Goods and Services” report from the U.S. Bureau of Economic Analysis added to such questions.

While the latest news on the trade deficit often garners attention from this report, the trade deficit (or surplus) is a largely meaningless statistic. Indeed, while a trade deficit is assumed to be an economic negative, it turns out that when the trade deficit expands that usually reflects solid U.S. economic growth, with imports used by U.S. domestic businesses (reflecting the needs and demands of both U.S. businesses and consumers) growing.

In the end, the way to look at trade data is to take note of the trends in exports and imports separately. Exports reflect opportunities in the international marketplace for U.S. entrepreneurs, business and workers, while imports, again, capture the state of domestic growth. Indeed, it’s vital to understand that imports are not economic negatives.

This latest trade report shows that exports increased by 1.6 percent (in nominal terms) in August. That makes for two consecutive months of growth, which is welcome. However, the August level of exports ($256 billion) was actually lower than where they were a year earlier ($261.6 billion) – and if inflation is factored into the equation, the decline was even more notable.

Meanwhile, imports in August ($314.3 billion) declined by 0.7 percent versus July. And compared to a year earlier, imports were down notably ($328.9 billion in August 2022), and the August 2023 level was down even more from the March 2022 amount ($348.2 billion).

These numbers and the trend on imports add to the questions many have regarding the state of the economy.

In the post-World War II era, international trade has been vital to U.S. economic growth. But the relative stagnation that the U.S. has experienced in recent years has been attributable in part due to trade. For example, real U.S. exports in 2022 remained below pre-pandemic levels reached in 2018 and in 2019.

One of the great contributions to economic growth, poverty reduction and the expansion of opportunity from the aftermath of World War II through the administration of President George W. Bush was U.S. leadership on reducing governmental barriers to trade. The U.S. and the world has paid dearly for the U.S. not only retreating that position of leadership on advancing free trade over the past decade-and-a-half, but at times becoming overtly protectionist. That has been and continues to be deeply troubling.

Make no mistake, growth and prosperity require the freedom to create, to innovate and to trade.

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.