ANALYSIS/OPINION:
The deteriorating world economy rightly has produced lower American growth forecasts in anticipation of falling U.S. exports. But a bigger economic threat may be stirring a surge of imports from major trade competitors, such as the European Union and China, urgently seeking debt-free growth and employment gains that their own economies aren’t providing. The resulting spike in the U.S. trade deficit could all but kill the current feeble recovery.
So far in this post-2007 economic crisis, the U.S. has avoided a major new trade hit. During the 2007-2009 Great Recession, trade flows actually curbed contraction. Since then, a rebounding deficit has subtracted from growth that remains completely inadequate.
Not even the latest international woes have depressed U.S. overseas sales in absolute terms yet. Their growth has slowed dramatically (by nearly 65 percent, year to date) and much more than that of imports (56 percent). This export effect, moreover, has been greater in the EU and China markets, where such deceleration has reached 78 percent and 82 percent, respectively, during the same period. But through the latest (April) official data, growth continues.
Yet tidal waves of foreign goods could soon start heading stateside. After all, this worldwide slowdown is broader than the last recession. After Europe, China’s troubles have made the biggest headlines. If the International Monetary Fund’s latest 8.23 percent real-growth projection proves accurate, that would represent the PRC’s worst performance since 1999. Moreover, suspicions are mounting that the official Chinese data used by the IMF are greatly exaggerated. But Brazil and India, which also largely escaped the last downturn, are now struggling, too.
China has long depended heavily on exports to spur the growth and jobs the Communist Party needs to preserve stability and stay in power. Brazil and especially India have been more inwardly focused. But with demand at home and among their European customers under pressure, all three along with the reeling EU itself will see even stronger incentives to target a U.S. economy that remains enormous, unusually import-friendly, and still doggedly spending-happy both culturally and thanks to the dollar’s global currency role.
Selling to America will also likely loom larger in the development plans of another big Third World country neighboring Mexico. Ditto for Asian export powerhouses like South Korea and Taiwan, whose populations have been far too small to foster their impressive income gains and world-class high-value industries.
Meanwhile, as worldwide growth prospects have weakened, so have most currencies’ values versus the dollar which will make foreign goods and services cheaper than America’s throughout the world. Over the Past year, the dollar has strengthened by 6.71 percent by the U.S. government’s broadest measure. (Adjusting for inflation reduces this figure to 5.27 percent.) But the nominal depreciations for many big trade competitors during this period are much greater nearly 30 percent for Brazil, more than 27 percent for India, and nearly 13 percent for the euro. As for China’s massively undervalued yuan, after years of modest appreciation, it’s now down 1.36 percent since its April 30 peak. (Washington doesn’t regularly issue inflation-adjusted country-specific exchange rates.)
During the late 1990s global economic crisis, Washington deliberately kept U.S. markets open to prop up the world economy. The results: Between 1997 and 2000, in real terms, American imports increased about 2 1/2 times more than exports, the trade deficit nearly tripled as a share of GDP, and its rise cut growth nearly 23 percent. But with U.S. output expanding up to four times faster than today’s rates, the loss seemed affordable. Nowadays, such a blow would reduce real growth to 1.5 percent a virtual recession. Moreover, active U.S. government enabling wouldn’t be needed to produce this result. Washington’s blithe bipartisan indifference to imports and trade deficits would be quite enough.
• Alan Tonelson is a research fellow at the U.S. Business and Industry Council, a national business organization whose nearly 2,000 members are mainly small- and medium-sized domestic manufacturers. The author of “The Race to the Bottom,” Mr. Tonelson also is a contributor to the council’s website, www.AmericanEconomicAlert.org.
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