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 Richmans' Trade and Taxes Blog

Morici wrote a good summary for Fox Business of the long-term problems caused by trade deficits
Howard Richman, 5/11/2014

His commentary is called Trade Deficit Dragging Down Growth. He begins:

On Tuesday, the Commerce Department reported the March deficit on international trade in goods and services was $40.4 billion. Overall, the deficit is up from $25 billion since the economic recovery began in mid-2009, and poses a significant barrier to stronger economic growth.

Household spending has recovered but too many of those dollars go to pay for imported oil, consumer goods from China and autos from Japan.

In the first quarter, GDP growth was a paltry 0.1% — consumer spending added 2.0 percentage points to growth. However, the increase in the trade deficit subtracted 0.8 percentage points. The increase in the trade gap negated 40% of the increase in consumer spending and cost at least 300,000 jobs.

At the end of the commentary he calculates the gain to economic growth that could be obtained by balancing trade:

Cutting the annual trade deficit by $300 billion, through domestic energy development and conservation, and forcing China and others’ hands on protectionism would increase GDP by about $500 billion a year and create about 5 million jobs.

Cutting the trade deficit in half would raise long-term U.S. economic growth by one to two percentage points a year. But for the trade deficits of the Bush and Obama years, U.S. GDP would be 10-20% greater than today and unemployment and budget deficits not much of a problem.

The entire commentary is worth reading. I only disagree when he wrote that Liquified Natural Gas (LNG), not just Compressed Natural Gas (CNG) has an important future in U.S. transportation. Specifically:

Shifting federal subsidies from electric cars, wind and solar to more fuel efficient internal combustion engines, plug-in hybrid vehicles and liquefied natural gas in rail and trucking could slice another 1 or 2 million barrels a day off U.S. demand and eliminate dependence on imported oil altogether.

CNG and LNG are two ways to use natural gas as a motor fuel. CNG is less expensive at the pump than LNG, because it doesn't need to be cooled, just compressed. For a while it looked like diesel engines could only run on LNG or a combination of diesel and CNG, but the Westport/Cummins engine, which runs on 100% CNG, changed all of that. It is already being used instead of Cummins diesel engines in a growing number of large trucks. Furthermore, the needed infrastructure of public CNG filling stations is already being built, as you can see at the the following website:

http://www.cngprices.com/station_map.php