After an incredible run, up nearly 10% in just four months, imports took a break in January 2018. Year-over-year, not seasonally-adjusted, imports gained 9.5%, a rate that is better than experienced during the similar upturn in 2014 but still well short of what the rest of the world requires for global growth. The fact that almost all of that gain came during the aftermath of Harvey and Irma at this point raises doubts as to whether US demand will be sustained even at this low level.
As with other economic accounts in December and January, the rolling over strongly suggests the artificial boost of the hurricanes’ collective aftermath. In terms of imports, this was an especially strong response. Inbound trade had between January 2017 and last October contracted again, signaling the opposite of “globally synchronized growth” (unless growth in this context included that negative signs).
The very sharp rise particularly in the sector of trade driving it, consumer goods, proposed the artificiality of the trend. Rather than recognize that for what it likely was, instead there was a rush to see the dramatic upswing as, well, a lasting dramatic upswing – to the point now that the import side in particular is being used to justify tariffs and the impetus for a trade war.
It’s that last part that is truly unfortunate, not because I believe tariffs will have much of an economic effect way one or another. Rather, they are emblematic of what I believe is the worst case – the further fragmentation of the political and social order that in one sense needs to happen but at the same time opens the door to far greater risks of where the clear lessons of history are forced silent.
The issue isn’t US trade, but the distinct lack of global trade at all. The trade deficit is a symptom or even byproduct of the eurodollar system as it is. Just as with immigration or robots, the fact that the rest of the world (primarily China) holds a mercantile surplus against the US is the wrong place for focused attention. It’s understandable to a degree, at least like now when legitimate economic criticism is often forbidden. The economy has recovered, so we are told, therefore something else has to take the blame – because there is blame.
And it’s not as if the Chinese are experiencing their own rapid revival at our expense. Far from it. That’s what gets lost in these sorts of things; we are all losers here.
As I wrote with regard to the Italians voting as they did this past weekend:
If anything, I think Italians, the British, Americans, etc., have until recently all shown remarkable restraint. They gave the technocrats the benefit of the doubt time and again, with dubious policies and experiments and then promises that haven’t come close to being kept. Ten years is a long, long time for nothing being accomplished. That’s really all there is to it. It’s just that simple.
Enough time has passed for the idea of recovery to become a real thing. It isn’t. No central banker, and therefore politician, will honestly answer for today without first trying to appeal to how it’s all in tomorrow. That’s just not good enough; it might have been for 2012 or still somewhat in 2014, but no more. That ship is sailing empty to the next port.
People want answers and in that state it’s easy to just attack whatever it is that seems so far and so clearly out of balance; to look at the trade deficit and think that it has had something to do with the lack of recovery – which, in one narrow sense, it has.
But the idea that it can be fixed simply by reducing a negative to a smaller negative is the kind of simplistic thinking that Economists have deployed as they have fixed nothing. The problem isn’t just the minus sign or the depth of the trade negative, it’s why there is a minus sign and why there is now no offset to it anywhere else (for the middle 2000’s, there was a housing bubble; now?).
That’s really the problem, meaning that because the global economy hasn’t grown, and doesn’t look like it will anytime soon, despite the overheated hurricane-assisted rhetoric, the trade deficit is the unhelpful lowest hanging fruit far too distant from the real issue behind global political dissatisfaction. The question to answer isn’t “why aren’t Americans making these goods instead of foreigners?”, it’s “why isn’t anyone making more goods anywhere?”
The former is the zero-sum game that doesn’t account for the latter where what’s missing is the appropriate consideration for the whole pie expanding, not how much any one participant might wish to take from it.
Actual free trade is a good thing, unequivocally. Unfortunately, the globalization of the past four or five decades hasn’t been free trade. Eurodollar money/credit-based trade is a wholly different animal, and rather than enriching both sides it has instead screwed everyone. Nobody wins.
When nobody wins, countries start to look inward as cooperation disappears. Looking to tariffs and the US trade deficit is simply the wrong order, the cart before the horse. Unless and until the economy is fixed, at best it can only be unhelpful noise; at worst, symptomatic of the downward spiral, the non-economic costs piling on top of the staggering economic hole.
To focus on imports because of Harvey and Irma? Regrettable, but just that typical.