I thought the President made a lot of good points in this FT oped today, including the importance of his jobs plan for growth, global cooperation on financial reforms, and phasing out subsidies for fossil fuels.
But I’ve got to say that I’ve never understood this rap about “doubling exports”—(POTUS says we’re “on track to double our exports”).
Let me explain why.
Imagine that you’re on the committee to decide whether to renew the contract of the coach of your town’s football team. He’s making his case, breaking down the stats that the team posted over the season:
“We scored an average of 2.7 touchdowns per game; we made 80% of our field goal attempts, and over the course of the season, we scored 352 points!”
You then point out that the opposing teams scored a total of 522 points, and that we lost most of our games.
He runs out of the room crying, mumbling about how it’s not fair to do “net” calculations.
I think it’s great to boost our exports and very much applaud the President’s initiatives to do so (of course, I think China currency is the huge issue here, and I suspect the administration agrees). But the relevant metric here is not exports, it’s exports-imports, otherwise known as net exports. We can increase our exports all we want, just like our coach could brag on all the points we scored. But if our imports grow faster—if the other team scores more than we do—then growth and jobs will be reduced.
The figure shows the real trade deficit over the last 10 years. It improved considerably—became less negative—since the mid-2000s and has been relatively flat since. Now, any improvement in the trade deficit can boost GDP growth—we don’t need a surplus for that, and there have been numerous quarters recently where we got much-needed help from growing NET exports.
But let’s get the metric right on this. If you only know the points scored by your team, then you don’t know the score.