US trade gap a sign of growing economy, says Snow

AFP) ^ | Wed Jan 12,10:41 AM ET

[jb6]

NEW YORK (AFP) - US Treasury Secretary John Snow said the record US trade deficit was the result of strong economic growth and the United States outpacing the growth of other countries.

AFP/DDP/File Photo

"The trade gap reflects two things: that our economy is growing at a fast pace and we are growing faster than our trading partners," Snow told reporters.

The United States posted a record trade deficit in November, the government said Wednesday.

The Commerce Department (news - web sites) estimated that US exports sank 2.3 percent in November, driving the US trade deficit to all-time high of 60.3 billion dollars.

While exports fell to a five-month low of 95.6 billion dollars, imports rose 1.3 percent to a record 155.8 billion as the bill for imported oil rose by 17.7 percent, or more than 2 billion dollars, to a record 14.2 billion

[ninenot]

Mr Snow is very proud that Al Greenspan and X42 were successful in promoting Consumerism.

Now THERE'S an accomplishment!

[ninenot]

Ummmnnnnhhhh...most homes are purchased on a cashflow basis--that is, if the Interest Rate is sufficiently low, people can "buy up."

Al Greenspan engineered the Great Home Inflation nicely, did he not?

And you swallow the KoolAde...

[Toddsterpatriot]

Adjusted for inflation, of course?

Why would you adjust your net worth for inflation?

net worth of households reached $40.3 trillion in 2001, up from $27.2 trillion in 1995.

Home ownership is at an all-time high, as are existing home sales. U.S. household wealth stands at a record $51 trillion(in 2004).

Why don't you adjust $51 trillion for inflation and show me how small an increase it really was from the $27.2 trillion in 1995.

[fallujah-nuker]

Looks good to me, as long as we can keep our trade deficit growing rapidly as a percentage of GDP we can look forward to robust economic growth. Thanks to free trade the nation is marching along a permanently high plateau of prosperity.

[Paul Ross]

First, there is a key break from the history Griswold tries to take comfort from, throughout the period encompassed in the tables, the U.S. dollar value more or less grew because we were dealing with a starkly lower level of imports...and the U.S. could more or less count on new products...that were then manufactured here not in China.

An evidence of the falsity of the Griswold's hypothesis is the collapse of the U.S. dollar...under pressure mostly from the trade deficit....as one "real" measure of economic well-being.

Second, the sheer magnitude and relative portion of the imports today undermines the Griswold tabular thesis. We are seeing a markedly quantum difference today, with mushrooming import levels now growing to be about 10% of the economy. I believe that we may have crossed an "Economic Event Horizon" from which we may not be able to escape...certainly not without the recession that is casually decried by those leading us still deeper into the black hole. One possible measure of this hazard for our future economic performance would be to survey how many of our new technology products never see the light of a U.S. factory, but instead are shipped straight to China for production. A perfect illustration: Camera/TV/Cellphones, Flat-screen LCD/Plasma displays, and so on.

Third something is not right with the manufacturing numbers, as we know overall consumer manufacturing employment has been steadily declining in the key categories overall through the 90's. The most significant U.S. manufacturing up-tick in the last 3 years would be non-consumer, such as defense-related industrial increases...substantial enough on their own to dramatically improve the appearance of overall U.S. "manufacturing production." If they are a component in these numbers, then I would recommend that the military orders need to be pulled out to get a clearer sense of any real impacts of the trade deficit. Standard Multi-variant analysis. Control for the factors independent of the variable you are testing for. Military orders are subject to a 50% US content requirement. Used to be 75% under Reagan. And while military sales abroad are also part of our trade dynamics, it is generally understood that our own military requirements dwarf the rest of the world's appetite for the superior U.S. hardware.

On the civilian side, much of the non-cyclical employment losses are frequently explained away by Cato as productivity increases. That is certainly true with Information Systems and automated process control and assembly, etc. But a large portion of such types of manufacturing innovation has reached maturity, and the next major innovative approaches will require new product and R&D thereto. I maintain that Productivity went up into and through much of the 90's but since the late 90's has NOT gone up to account for this continuing claim of "production". I would surmise that we are, instead, seeing import substitution. I.e., the Chinese imports are substituting for the domestic manufactures or component content, the U.S. brand name then is slapped on...and this is deemed, artificially...and dishonestly...as "productivity increases."

We are seeing an economy already starting, from much further down a slippery slope than at any time previously in the past 25 years, and this clown says more, still more, gain speed! Fear not!

[neutronsgalore]

"Military orders are subject to a 50% US content requirement. Used to be 75% under Reagan. And while military sales abroad are also part of our trade dynamics, it is generally understood that our own military requirements dwarf the rest of the world's appetite for the superior U.S. hardware."

I like Duncan Hunter's proposed legislation that would mandate that by 2020(I think it was) 100% of US military components be made in the USA. I remember the neo-con free traders freaking out on that one. Rumsfeld in particular.

[neutronsgalore]

"U.S. household wealth stands at a record $51 trillion."

And that's just the middle class and lower?

[remember]

We really just said the same thing here. NX or net exports [that is, take the total dollar value of what we exported...now subtract that by the total dollar value that we imported and you get the NX] being a negative number means that our exports, on net, were outpaced by the amount that we imported and therefore placed us in a trade deficit.

Once again, I understand the relationship that your table at the post you referenced is suggesting but I don't believe that you are stating it clearly. Your table and Table 1 in the CATO pdf file you reference is suggesting a relationship between GDP growth and the CHANGE in the trade deficit, not the deficit itself. Note that your table contains a %NXonGDP value of -2.18 for 1948 but that the graph and table at http://home.att.net/~rdavis2/tradeall.html show that there was a trade surplus in that year. The -2.18 value indicates that, as the graph shows, the surplus got smaller from 1947 to 1948.

In any case, I think that I can see some of the reason for this apparent relationship. If you look at the initial graph of the trade deficit that I posted above, you'll see that imports decreased from 1974-75, 1980-83, 1990-91 and 2000-01. This was pretty much in the time periods of the last four recessions. However, exports did not follow that pattern. In fact, there appears to be some correlation between exports and the following graph:

It appears that exports tended to increase in periods of a weak dollar and increased in periods of a weak dollar. In any case, decreased imports would tend to improve the trade deficit/surplus during periods when the GDP was decreasing (recessions). Does that mean that increased trade surpluses cause recessions? Of course not. If anything the cause and effect moves in the other direction and/or both symptoms are caused by other factors.

In addition, you have to consider the cost of a large trade deficit. Our trade deficit is now approaching 6 percent of GDP. That money is coming back via investments and the purchase of assets. Is it worth giving up 6 percent of GDP in assets in order to gain a extra 1 percent of GDP growth?

By the way, do you (or anyone else) have any thoughts on the apparent correlation between U.S. Nonfinancial Debt and the GDP shown in the graph above?

[dennisw]

US trade gap a sign of growing economy, says Snow

Me maxing out my credit cards, taking out a $100,000 second mortgage, then going on a spending binge is a sign that I'm more prosperous.

[Toddsterpatriot]

Ummmm, that would be all households.

[LowCountryJoe]

Once again, I understand the relationship that your table at the post you referenced is suggesting but I don't believe that you are stating it clearly. Your table and Table 1 in the CATO pdf file you reference is suggesting a relationship between GDP growth and the CHANGE in the trade deficit, not the deficit itself. Note that your table contains a %NXonGDP value of -2.18 for 1948 but that the graph and table at http://home.att.net/~rdavis2/tradeall.html show that there was a trade surplus in that year. The -2.18 value indicates that, as the graph shows, the surplus got smaller from 1947 to 1948.

OK, I do see where I misrepresented the information but I did not do this maliciously but rather out of ignorance of what the data was telling me. Anyhow, the CATO piece does do the trick in getting across what I was trying to (and doing it accurately).

Does that mean that increased trade surpluses cause recessions? Of course not. If anything the cause and effect moves in the other direction and/or both symptoms are caused by other factors.

I never claimed that recessions were caused by trade surpluses but what I did say was that it appears that higher trade deficits seemed to be linked with larger GDP growth and surpluses with lower growth. I do think these things are related because if a business can save on its expenses through trade, owners make out better. And, the lower the costs are, the more the savings can be passed on to consumers too - giving them a budgetary savings that can be used on addition consumption of other things...all underpinning of the comparative advantage.

Is it worth giving up 6 percent of GDP in assets in order to gain a extra 1 percent of GDP growth?

This is a loaded question. First one would have to assume that the actual GDP number (not the percentage growth of) could have been achieved without the 6% capital account surplus - the flip side of that 6% trade deficit. Now, the more appropriate question would be if the actual change in net export value was offset by the actual change in the numerical growth of the GDP. You can find the data or chart on that one if you want...if I did it I'd probably just screw it up!

By the way, do you (or anyone else) have any thoughts on the apparent correlation between U.S. Nonfinancial Debt and the GDP shown in the graph above?

I have not a clue, but just so I'm clear; what do you mean by U.S. Nonfinancial Debt?

[Paul Ross]

Rumsfeld in particular.

Actually, I would beg to differ on that. Rummy is not a "neo-con" just an old-line conservative (fiscalist and foreign policy, not, alas on social or cultural issues). Nor is he truly a run-amok devil-take-the-hindmost free trader. He was the defense-minded member of the Commission studying the deficit problem, i.e., the Federal Trade Deficit Review Commission.

How then to account for his vigorous...and as we know...unwarranted attacks on the idea of restoring domestic military hardware content requirements? I.e., to at least the 75% level that Duncan Hunter was championing? A couple military joint-ventures would be torpedoed. The JSF for one, which had a ridiculous multinational contribution despite the US funding the virtually the entire plane's R&D ...and compromising vital technology from the predecessor F-22 program with foreign nations. The hard-core military folks say...let them be torpedoed! They are NOT pulling their weight!

After the Swiss incident (Swatch), and the continuing misbehaviour of the French and Germans, who knows what the future will hold on the defense supply chain? Unfortunately, however, Donald Rumsfeld can't make the policy on these matters himself. He must report to the President, who is still looking for ways to be chummy with EuroDweebs. And he feels he owes Tony Blair numerous favors. Britain's potential stake in the JSF is substantial.

I am convinced that Donald Rumsfeld was given fairly direct, and unmistakeably clear instructions...from the top...that Duncan Hunter's bill needed to be opposed, post-haste, due to the exigencies of international diplomacy. A continuing compromise retaining the pickle that Bill Xlinton got us into. Our defense preparedness and industrial capability be-damned. How can we be certain? What was the ONLY bill that the White House threatened to veto in 4 years? You got it. Duncan Hunter's domestic-content defense bill.

I'm afraid that the Prez himself, along with the State Dept., and our so-called allies, have much more to do with that episode than its most visible manifestation...Donald Rumsfeld.

[Alamo-Girl]

Thanks for the ping!

[LowCountryJoe]

And this hyperbole from you is related how?

Do you have an indicator of the economy, other than GDP, that we could use that would better suit the measurement of the health of our economy? Please enlighten us!

[LowCountryJoe]

I think that your ideological leanings have reached the event horizon...where your thinking and reasoning is so dense, that nothing you have written here is currently escaping toward the realm of actual reality. You may have been at the Lagrange point earlier in the week but you have since crossed that line into the point of no return, Mr. Ross.

[LowCountryJoe]

Ahhh, but is Paul Wolfowitz a "neo-con"?

[dennisw]

Y O U C A N N O T B O R R O W Y O U R W A Y T O P R O S P E R I T Y

[LowCountryJoe]

But can one innovate, become an entrepreneurial success, and grow to prosperity through financing and risk taking? Or is any kind of debt too much of a burden to bare?

[Dat Mon]

You said..."I never claimed that recessions were caused by trade surpluses but what I did say was that it appears that higher trade deficits seemed to be linked with larger GDP growth and surpluses with lower growth."

Heres an assignment Joe.

First, look up the term "monotonic function" in an elementary calculus book, and study an example.

Second, look at the function I gave you back way back, which was a cubic function. Try plotting the function for different parameters of K in Excel or MathCAD.

Third, now consider your correlation as described above, in the context of a nonlinear equation, actually a complex multidimensional one.

Fourth, consider some of the 'other' variables in the mix, such as the type of country you are describing, its age, its type of industry, its existing GDP, its natural resources, etc.

Fifth...Rethink your simplified relationship between GDP and trade deficits.

[dennisw]

But can one innovate, become an entrepreneurial success, and grow to prosperity through financing and risk taking? 

True. A fine use of borrowing

Or is any kind of debt too much of a burden to bare?

A yearly foreign trade deficit of 700 billion is unsustainable and exceeding dangerous. By and large we are borrowing to buy foreign goods for current consumption, not for productive investments. 
When you get a student loan, this is a productive investment in the future.