Raymond Richman - Jesse Richman - Howard Richman
Richmans' Trade and Taxes Blog
Mixed Trade Report for October
According to statistics just released by the Commerce Department, U.S. net exports improved slightly in October, though the three month trend is still downward. The best news is that net U.S. goods exports to China increased by $605 million for the year ending in October to a negative $320,419 million from a negative $321,024 million for the year ending in September.
A careful examination of the graph below shows that U.S. net goods exports to China stopped going down in 2013, after declining steadily throughout 2010, 2011 and 2012.
The decline in 2011 and 2012 was a continuation of a longer-term trend line. From about 2000 through 2012, the Chinese government maximized exports to the United States while minimizing its imports from the United States in order to grow the Chinese economy by beggaring the U.S. economy. Its strategy succeeded. China grew by about 10% per year due to increased manufacturing jobs, while median U.S. income declined due to the loss of manufacturing jobs.
It is not surprising that Presidents Clinton and Obama let China run trade surpluses with the United States. Progressives have long favored an internationalist trade policy. The real surprise is that President George W. Bush permitted these Chinese depredations.
Previous Republican presidents prevented foreign governments from harming the U.S. economy. Nixon ended the U.S. trade deficit of 1971 by imposing an across-the-board tariff under a special WTO rule for trade deficit counties. Reagan greatly reduced the U.S. trade deficit in 1985 through the Plaza Accord and by imposing "voluntary" import quotas upon Japan.
Republican presidential candidate Mitt Romney planned to take action against Chinese trade practices if elected in 2012. That may be one of the reasons why his campaign servers "were under a continuous assault by Chinese hackers," according to Time Magazine.
Beginning in May 2010, Bernanke, Chairman of the Federal Reserve, took belated action to reduce the U.S. trade deficits. His purchases of long-term U.S. bonds (Quantitative Easing) sent private savings abroad, which drove down the dollar exchange rate and boosted the exchange rate of many non-mercantilist countries. (The mercantilist central banks kept their exchange rates low by buying an increased amount of dollars.)
Although Bernanke's action increased U.S. net exports in 2011, 2012 and the first half of 2013, that effect has just started shifting in the opposite direction. The trade deficits that he gave to Brazil, India, Turkey, Indonesia and South Africa have thrust those non-mercantilist countries into trade-deficit caused financial tailspins. The U.S. is just beginning to experience a decline in net exports to those countries, as shown in the last two months of this graph of U.S. net exports to Brazil.
In 2014, U.S. net exports could go either direction. Improved trade with China could increase them. Continuing financial crises in the non-mercantilist countries could reduce them. If the trend of the last few months continues, U.S. net exports will decline, which will slow U.S. economic growth.
Journal of Economic Literature:
Atlantic Economic Journal: