Record US Trade Deficits Spell Impending Economic Defeat

AmericanEconomicAlert.org ^ | Thursday, February 17, 2005 | William R. Hawkins

[Willie Green]

Here are the facts:

Gross Domestic Product (GDP), the measure of the USA's output of goods and services, is calculated by the Commerce Department's Bureau of Economic Analysis using the following items:

• Personal consumption expenditures: Personal consumption expenditures are far and away the largest and tends to be the most stable of the four expenditures, averaging about 65-70% of gross domestic product.
• Gross private domestic investment: Expenditures on capital goods to be used for productive activities in the domestic economy that are undertaken by the business sector during a given time period. Gross private domestic investment tends to be the least stable of the four expenditures, averaging between 12-18% of gross domestic product.
• NET EXPORTS OF GOODS AND SERVICES Net exports of goods and services is the smallest of the four expenditures, averaging around 2% of gross domestic product. Unlike the other expenditures, net exports of goods and services can be either positive or negative. They are positive when exports are greater than imports (Trade Surplus) and negative when exports are less than imports (Trade Deficit). In recent years, net exports of goods and services have been negative.
• Government consumption expenditures and gross investment measures government purchases undertaken by the government sector. Government consumption expenditures and gross investment averages between 15-20% of gross domestic product. This percentage tends to be ebb and flow a little with the political winds.

The BEA News Release for FOURTH QUARTER 2004 provides us with the following current data for these items. (Seasonally adjusted at annual rates)

Gross domestic product (GDP)............................. $11,728.0 billion
Personal consumption expenditures.......................... 8,231.1 (70.18% of GDP)
Gross private domestic investment.......................... 1,922.4 (16.39% of GDP)
Net exports of goods and services........................... -609.3 (-5.19% of GDP)
Government consumption expenditures and gross investment... 2,183.8 (18.62% of GDP)

The current BALANCE OF TRADE is in deficit, which is considered unfavorable.

And at historic highs, it diminishes our domestic economy by over 5% - more than twice the normal variation. This is NOT insignificant.

[mlc9852]

Does anyone know the last time we didn't have a trade deficit?

[Betaille]

Lol, Willie Green is at it again. You need to learn basic economics Willie.

[Willie Green]

ping

[Betaille]

Willie... please pick up an economics textbook. The imbalance of trade is accounted for in the other parts of the GDP equation, it's not a dead-weight loss to GDP as you claim here.

[An Old Marine]

Willie... please pick up an economics textbook. The imbalance of trade is accounted for in the other parts of the GDP equation, it's not a dead-weight loss to GDP as you claim here.

Thank you. I get tired of trying to explain economics to liberals. Its like trying to explain sex to virgins.

[Sam the Sham]

Another function of decline is the kind of blind complacency so characteristic of late imperial rot. Deficit ? What deficit ? So long as we have Chinese imports everything is fine.

[KevinDavis]

I heard the same crap when Reagan was President.

[Betaille]

"Thank you. I get tired of trying to explain economics to liberals."

Don't get discouraged old marine. Demagogues like this guy only survive on ignorance, if you educate their audience their appeal dissapears.

[Willie Green]

Does anyone know the last time we didn't have a trade deficit?

U.S. MERCHANDISE IMPORTS, EXPORTS, AND TRADE DEFICITS: 1940-2003

It looks like it was 1975.
The value of the dollar has declined signficantly since then.

[Nathan Zachary]

Trade deficits do not mean economic woe, they mean Americans have lots of money to spend, and can afford imported goods.

Where did this concept that Americans must ship out more than they ship in come from?

[Betaille]

You don't understand what a trade deficit means, it's not a deadweight loss. If you pick up an introductory economics textbook and learn what you're talking about you'll realize that you are being hysterical.

[cotton1706]

We have imports going through the roof but still nobody would consider putting any tariffs on these products. Even a measly one or two percent tariff on selected goods would bring in billions to the Federal Treasury. Let's make some money on this trade deficit!!

[Betaille]

"Where did this concept that Americans must ship out more than they ship in come from?"

It's a useful tool for demagogues on both the left and right, because alot of people don't understand what the numbers mean.

[TChris]

Thank you all for coming. Today, I would like to formally announce, with conclusive analysis conducted by Willie Green supporting me, that the sky is most definitely falling. I'll take a few quetions...

[mlc9852]

My thoughts, too. Is the deficit actually such a bad thing?

[Betaille]

That would just raise prices for consumers and business costs for US businesses. Please educate yourself before listening to someone like Willie Green.

[Phantom Lord]

I heard the same crap when Reagan was President.

By all accounts, we should be speaking Japanese right now based on what the doom and gloomers were saying in the 80's.

[Betaille]

"My thoughts, too. Is the deficit actually such a bad thing?"

It's not necessarily good or bad. It doesn't mean what this Willie Green guy is implying it means.