Trade and
protectionism are hot topics. At the root of the discussion is what has
happened to the US as a trading partner. There is much to this debate and I
won’t handle it all here today. Instead I focus on something that I think is
central to the issue – the performance of US trade in goods.
International
trade goes well beyond trade in goods. But as it turns out, a key part of what
we consider to be problematic for the US is trade in goods. We trade services
(like entertainment, transportation, shipping, and tourism) and we engage in a lot of
international exchange with respect to financial and real assets (bonds,
stocks, bank accounts) but we generally run surpluses in those trades. If we
have a large and persistent trade deficit, it is mainly with respect to goods.
So I am back
to playing with the data again this week. With trade figures there are choices
to make. Much of what we refer to as trade is measured and captured in our
balance of payments (BOP) account. There we find the Current Account and the
Financial & Capital Accounts that contain information about exports,
imports, and so on. These figures are always presented in nominal terms and
thus measure changes in both quantity and price. Export and imports of goods
and services are also published in our National Income Accounts (NIA) and those
measures of trade are very compatible with the way Gross Domestic Product (GDP)
is measured. The NIA accounts are presented in both real and nominal terms.
Yikes – too
much information. Anyway, I decided to use the NIA measures since they
are compatible with the way GDP is measured. I am using the nominal versions
because they are somewhat more compatible with the BOP figures. I did a quick
comparison of the real and nominal NIA measures and it didn’t change my overall
conclusions. Whew. Where’s that JD?
The table at
the bottom shows nominal NIA measures of US exports and imports of goods
starting in 1964, the year I began studying Industrial Management at Georgia
Tech and was introduced to chili dogs at the V in Atlanta. I present data for
five years that are separated by 13 year-intervals because 13 is my favorite
number (1964, 1977, 1990, 2003, and 2016). These 5 years bracket 1990 which is
a demarcation point for the rise of globalization. This allows me to compare 26
pre-globalization years to 26 post-globalization years. Is this fun or what?
The top of
the table presents US imports and exports in billions of dollars. Nominal GDP, also in the table, went from
about $6 trillion in 1990 to almost $19 trillion in 2016. Some of that increase
is because of price increases – with the rest from quantities. But GDP is not
the point today – though it gives you a benchmark as to how much the size of
the overall economy changed over those 52 years. Goods exports went from $403
billion in 1990 to almost $1.5 trillion in 2016. Imports increased too – from
$508 billion to about $2.2 trillion. The net imports (imports minus exports) was
$105 billion in 1990 and increased to $778 billion in 2016.
If I stopped
right now many of you would have an aha moment. What you would see is the
following post-globalization experience: US imports of goods outran our exports
of goods and the trade deficit in goods increased dramatically. There are no
smoke or mirrors here. This is the kind of information that supports the popular
idea that globalization has not been good for the US and that there might be unfairness
working against us – be it so-called free trade agreements or cheating or
whatever.
But let’s
not stop there. In the second part of the chart we display trade in goods as a
percent of GDP. In 1964 goods exports were 3.9% of GDP. By 2016 goods exports
accounted for twice the share of the economy at 7.8%. But notice that the
pre-globalization gain of 2.8 percentage points (from 3.9% to 6.7% of GDP)
compared to the 1.1 percentage point gain in the post-globalization years. That
is, exports gained as a share of the economy much more before- compared to after-globalization. What about imports? Imports of goods increased 2.7 points before
globalization and then 3.4 points post-globalization.
It is true
that imports of goods picked up its pace after globalization while exports did
the opposite. But notice also that much of those changes came in the 13 years
after 1990. During the time from 1990 to 2003, exports fell as a share of GDP
while imports rose dramatically. But then in the most recent 13 years we see
that reversing as the share of exports increased at more that twice the pace of goods
imports.
What can we
say?
First, goods trade – both exports and imports were rising as
a share of the economy for 52 years – both before and after globalization began
accelerating in 1990.
Second, when we compare the data before 1990 with what
happened afterward you can see much bigger increases in imports of goods
relative to exports.
Third, if we look closer at the data since 1990 we see that
most of the advantage of imported goods peaked by 2003 and has reversed since.
What does
all this mean? For one thing it means that this is a pretty rich stew with a
lot of vegetables. If we combine these numbers with the numbers from last
week’s blog post we wonder if some of these trade results have something to do
with the fact that so many countries have been narrowing the economic gaps
between them and the US.
The 1990s
were a time when many countries decided to open-up and use trade as a
development tool. These countries wanted to rebuild and become more competitive
and many were very successful as we saw in this blog last week. As incomes across the world
grew, so did their appetites for goods and the growth of US exports of goods verifies
this. But as their incomes grew they also became stronger competitors to the US
and our goods imports rose as well.
Since so
many countries were starting from very low incomes and poor productivity it made
sense for the US to make special compensations or to ignore remaining protections in these countries. US citizens gained many of the
benefits as more goods were available to them at lower prices. Lower prices gave US residents more dollars to spend and these people redirected some of these surpluses to US companies and created millions of jobs. The GDP data below show remarkable growth in our economy as some jobs declined while other expanded.
There are
some who think that the US can use its own arsenal of protectionist policies to
preserve and restore jobs in the US. But that thinking is short-sighted. Despite
catching up many countries still retain much lower incomes and a distinct price
advantage that goes with it. Protecting US citizens from low prices on low-skilled goods makes no sense. It’s like sticking a finger in the dyke. What
makes more sense is to recognize that the world has changed and that developing
countries need to protect their own industries and workers less. Let’s not
raise the worldwide level of protection – let’s lower it.
But what
about all those US workers in firms and industries that cannot compete? The
answer is pretty simple in principle. Protecting these workers is only a
temporary measure so long as the American worker makes $50k per year and foreign
competitors make half or less. What makes sense is to encourage other countries
to keep catching up with our incomes – and to find ways to better train and
retrain our workers to fit better into US advantages in education, science, technology, entertainment, communications, and so on. The data below
suggest that the export/import issue started turning in 2003. Perhaps we can
keep that alive in the next 13 years following 2016.
Billions of Dollars
|
1964
|
1977
|
1990
|
2003
|
2016
|
Nominal GDP
|
686
|
2,086
|
5,980
|
11,511
|
18,625
|
Exports of Goods
|
27
|
128
|
403
|
741
|
1,446
|
Imports of Goods
|
40
|
153
|
508
|
1,296
|
2,224
|
Net Imports
|
13
|
24
|
105
|
555
|
778
|
As Percent of GDP
|
1964
|
1977
|
1990
|
2003
|
2016
|
Exports of Goods
|
3.9
|
6.2
|
6.7
|
6.4
|
7.8
|
Imports of Goods
|
5.8
|
7.3
|
8.5
|
11.3
|
11.9
|
Net Imports
|
1.9
|
1.2
|
1.8
|
4.8
|
4.2
|
|
|
|
|
|
|
Source BEA.gov
|
|
|
|
|
|
