Upon reading my morning Wonkbook, I rarely say to myself, “hey, that’s not right!” I typically say, “that’s interesting” or “just as I thought” or “neat graphic” or “hmmm…I’ll borrow that point and use it later.”
So it was with surprise that I read this headline from their morning e-missive:
Trade deficit widens as imports rebound, driven by rising domestic consumption. So, on balance, good news. “The Commerce Department said on Wednesday the trade gap increased 13.3 percent to $39.1 billion, partially unwinding a plunge in June that had pushed the deficit to a 3-1/2 year low. Adjusted for inflation, the shortfall grew to $47.7 billion from $43.8 billion in June. It is this so-called real deficit that goes into the calculation of gross domestic product…Analysts said, however, that trade should begin adding to U.S. GDP later in the year given signs global demand is picking up.” Reuters. (my italics)
So, if GDP=C+I+G+NX, which it does, and NX (exports-imports) is a growing negative, then we have less growth and less employment. Sure, people buying more imports (“driven by domestic consumption…”) and thus they’re getting things they want, often at lower prices due to global price arbitrage. But price arbitrage also implies job and wage arbitrage and thus there are costs to the persistent trade deficits we’ve run in this country for years on end (the figure below shows that net exports as a share of GDP have been negative for 30 years). Simply put, we export too much labor demand, which is decidedly not, on balance, good news.