Today's Opinions, Tomorrow's Reality
By David G. Young
Washington, DC, June 4, 2013 --
Rising imports and stagnant exports threaten a half-decade of American progress.
When an alcoholic relapses after a time on the wagon, it is concerning even if it not totally surprising. So it is with America's latest economic numbers, which show the trade deficit taking a sharp rise of 8.6 percent in April1, led by a surge in imports and anemic export growth.
Because monthly numbers often fluctuate, this could be nothing. But this is cause for concern because of America's troubled history of overextending itself on consumption. Add to the concern signs of a continuing trend: As more European countries sink into recession, there are fewer buyers for American exports. And as Americans begin to feel richer (the stock market is again at record highs, and household wealth is now at 85 percent of pre-financial crisis levels2), they will feel free to spend more.
This could erode solid improvements in America's trade balance since the financial crisis.
If you factor out volatile petroleum prices from the equation, things have improved markedly in the past five years. The non-petroleum trade deficit has gone down in annualized terms from $260 billion in the first quarter of 2008 to $100 billion in the last quarter of 2012.3 Much of this has been driven by a surge in exports that have grown faster than imports.
In other words, America is making more things again and selling them all over the world. Meanwhile, it has been keeping it consumer appetite in check -- at least until now.
Are April's import numbers the beginning of a relapse? Have Americans not really turned over a new leaf on their out-of-control consumer spending? Have they simply delayed purchases while they were unemployed, behind on their underwater house payments, or worried about their sagging 401Ks?
During the Great Depression, a generation of Americans learned their lesson the hard way. Much sharper economic pain in the 1930s taught Americans frugality that they kept for the rest of their lives.
But because of unprecedented government intervention to bail out financial and industrial firms in the wake of the 2008 financial crisis, the recession wasn't nearly as deep. Some economists, like Reagan Budget Director David Stockman, see this failure to let the recession run its course as a mistake that will keep Americans from learning their lesson.4
Similarly troubling is the risk of recession in Europe on America's nascent export industries. In May, the European Union statistics office said that nine of the 17 EU nations were in recession, and the overall EU economy had contracted for the sixth straight quarter.5 While this will clearly limit the near-term growth of U.S. exporters, the real concern is that it will have effects beyond the near-term. As the largest single consumer market in the world, it has long been easy for American companies to focus on domestic rather than international sales. Despite significant gains in American exports the past five years, economic trouble in Europe encourages companies to put less effort into overseas sales -- a behavioral pattern that could last well beyond a European recovery.
Taken together, a worst-case sagging of exports and a surge of imports could soon return America to its days of unsustainable $700 billion trade deficits. See this happen, and you will know a new day of reckoning will be on the horizon.
Related Web Columns:
Smarter Than a Spendthrift, August 11, 2009
Time for a New Leaf, February 28, 2012
2. Federal Reserve Bank oF St. Louis Annual Report 2012, May 2013
3. Bureau of Economic Analysis, U.S. Trade in Goods, Millions of dollars, seasonally adjusted (Table 2a.), March 14, 2013
4. Economist, About Turn, June 1, 2013