Wednesday, April 5, 2017

Trumpconomics: Deficit Shrank As Economy Grew Faster

Obama's nightmarish trade deficits are shrinking under Trump.
The U.S. trade deficit shrank by nearly 10 percent in February, hinting that the economy may be growing at a faster pace than many economists expect. The deficit fell to a seasonally adjusted $43.6 billion, lower than the $44.6 billion economists surveyed by the Wall Street Journal had expected. Exports rose 0.2 percent to $192.9 billion in February while imports declined 1.8 percent to $236.4 billion, the Department of Commerce said Tuesday.

The Trump administration has made the reduction of the trade deficit one of its central economic goals, describing our persistently large trade deficits as both an economic and security risk. February’s decline makes that goal easier to achieve.

Exports were boosted by improving economic conditions around the globe, as well as a rise in the value of several major currencies against the dollar. A weaker dollar makes American-made goods less expensive for foreign buyers. Exports of goods hit their highest level on record, after adjusting for inflation. Exports of services also rose. Overall, exports are 7.2 percent higher than they were a year ago.

Imports declined as U.S. consumers imported fewer consumer goods such as cell phones and autos from abroad. A lower trade deficit is a boost to the economy and may raise first-quarter gross domestic product. More importantly, it likely means growth will be even stronger in the spring as manufacturers and service providers kick into higher gear and hire more workers to meet rising global demand.

Trade deficits are not necessarily a sign of a weak economy. In a fast-growing economy, a large trade deficit can develop as rising wealth pulls in more imports. But when the economy is not growing fast, it can be an economic drag. Spending on exports subtracts from demand in the U.S. economy, benefitting foreign workers instead of Americans in need of good jobs.

This can have big impacts on areas of the country where manufacturing is particularly important. Research has shown that the deindustrialization of the American Rust Belt is at least partly attributable to trade imbalances with China, for example.

Max Ehrenfreund reports in The Washington Post that two economists have posited a theory that the U.S. trade imbalance with China and subsequent de-industrialization has had fatal consequences for American workers. From The Washington Post:

White Americans without a college degree are becoming more likely to die in middle age, reversing decades of progress toward better health. Researchers first noticed this worrisome trend last year. They pointed to increases in opioid abuse, obesity and suicide among the causes of death, but what caused these increases has remained something of a mystery.

This week, a pair of economists have advanced a new theory. They suggest that, for many workers, a major shift in the structure of the U.S. economy could have been fatal. The researchers, Justin Pierce and Peter Schott, found evidence that trade with China has resulted in greater rates of suicide and poisonings (including fatal drug overdoses) after 2000, when President Clinton and Republican lawmakers allowed a major increase in imports.

Pierce and Schott suggest that as competition with Chinese manufacturing forced U.S. factories to close, many of the Americans who were laid off never got their lives back together. Instead, they fell into depression or addiction. White adults, in particular, suffered from the change in policy.

A new study by the Economic Policy Institute (EPI) has found that California lost a net 589,100 jobs from 2001 to 2015, after China entered the World Trade Organization. Researchers at EPI found that the growing U.S. goods trade deficit with China displaced a net 3.4 million jobs in the United States. About 2.6 million, or 74.3 percent, of those jobs lost were in manufacturing.

Imports from China during the 15-year period increased from $102.3 billion in 2001 to $483.2 billion in 2015. U.S. exports also rose on a rapid percentage, but from a smaller base of $19.2 billion in 2001 to $116.1 billion in 2015. EPI called the trade deficit with China the United States’ most unbalanced trade relationship.

The top four states in terms of total jobs lost were California, Texas, New York, and Illinois. California lost 589,100 jobs, compared with 321,300 in Texas, 191,500 in New York, and 149,400 in Illinois. California accounted for 17 percent of all net American job losses to China.

EPI found job losses to China in every state and in all 435 U.S. Congressional Districts. Eight of the top twenty districts that suffered job losses to China were in California. Those California districts hit hardest, in ranked order, were the 17th, 18th, 19th, and 15th in the South Bay Area; and the 40th, 34th, 52nd, and 45th in the San Diego region.

EPI observed that China suppressed the purchasing power of its own middle class with a weak currency exchange rate. As a result, EPI says, China amassed $4 trillion in foreign exchange reserves, while net U.S. borrowing from the rest of the world increased by nearly $5 billion, and the net U.S. debt to the rest of the world more than tripled between 2001 and 2015.

The Economic Policy Institute researchers also found: “China both subsidizes and dumps massive quantities of exports. Specifically it blocks imports, pirates software and technology from foreign producers, manipulates its currency, invests in massive amounts of excess production capacity in a range of basic industries, often through state owned enterprises (SOEs).”