U.S. Export Trends: Looks Good, Feels Bad

Since January 2005 net exports (while still negative) have gone up by about 1.55% of GDP through year end 2007, and so far have continued higher in Q1 2008.

In Q1 2005 the general environment was that of a 3% GDP growth rate while today it is at best about 1%.

Net Exports as a % of GDP

(Keep in mind: exports are real costs; imports real benefits)

That means for the economy as a whole, we 'feel' a total loss of 'average domestic consumption/investment' of over 3.5% of GDP.

That's why to many economists it 'feels' like a recession even though real GDP remains somewhat positive.

We are experiencing a rapid deterioration of what's called our 'real terms of trade'.

That means even though we might work just as hard and produce just as much, we get to consume less while we export more.

How far can this go?

It is all a function of how many US dollar financial assets the rest of the world desires to accumulate.

If that number is zero (meaning they don't want to add to their multiple trillions of USD financial assets they already have), US net exports will go to zero.

And we will feel worse by another 4% of GDP, all else equal.

And our policy makers think this is a good thing.

In the last round of Congressional hearings Bernanke testified that he would like to see less domestic consumption and more exports and investment.

Looks good, feels bad.

Comments

[Brian Shriver]

Nice article, good points, etc.

I would only clarify that the US trade deficit does not depend so much on "how many US dollar financial assets the rest of the world desires to accumulate" - this is strictly correct but too general - but rather on how many US dollar financial assets a dozen or so foreign central banks (and SWFs) desire to accumulate.

Based on Brad Setzer's data over at rgemonitor.com, it looks like a small group of "sovereign creditors" is financing not only the entire US trade and current account deficit, but also a substantial "capital flight" of private investors. Although hard to quantify, my sense is that the "capital flight" is maybe 2% of GDP but growing.

Interesting stuff.

[warren mosler]

but rather on how many US dollar financial assets a dozen or so foreign central banks (and SWFs) desire to accumulate.
AGREED, THAT'S BEEN QUITE A BIT OF IT. AND WITH PAULSON GOING AROUND AND CALLING ANY CB THAT BUYS $ US A CURRENCY MANIPULATOR AND AN OUTLAW HE'S ALL BUT REVERSED THIS PROCESS, AND THEREBY DRIVING UP US EXPORTS, WHICH HE CONSIDERS A GOOD THING.

it looks like a small group of "sovereign creditors" is financing not only the entire US trade and current account deficit, but also a substantial "capital flight" of private investors.

I PREFER TO SAY THAT US DOMESTIC CREDIT EXPANSION HAS BEEN FUNDING FOREIGN $US FINANCIAL ASSET SAVINGS.

IF I BUY A GERMAN CAR, AND BORROW FROM CITIBANK, MY LOAN CREATES AN EQUAL DEPOSIT WHICH IS TRANSFERED TO THE GERMAN'S ACCOUNT IN EXCHANGE FOR THE CAR. DOMESTIC CREDIT FUNDS FOREIGN ACCUMULATIONS OF $US FINANCIAL ASSETS- THERE IS NO 'FOREIGN FUNDING' INVOLVED.

THANKS!

[Ming]

Your article deploys what at first sight is a rather strange variety of economics.

What supports your assertion about 4%?

"If that number is zero (meaning they don't want to add to their multiple trillions of USD financial assets they already have), US net exports will go to zero.

And we will feel worse by another 4% of GDP, all else equal."

[Ming]

One might also add, your following statement is either strange or incomplete economics, strange or incomplete accounting, or some admixture of the two.

"Keep in mind: exports are real costs; imports real benefits)"

Exports are of course "real costs", but (what do you get in return?)

Imports are "real benefits", but (what do you lose for this?)

The economics and/or accounting premise upon which your article rests is very bad.

Its akin to say ... savings makes you feel worse off.

Actually, its intertemporal substitution of consumption!

[Ming]

One last point for now .... (more of your "crap" economics and/or accounting highlighted). As regards :


"If that number is zero (meaning they don't want to add to their multiple trillions of USD financial assets they already have), US net exports will go to zero"

Actually, what would happen in this case is USA net exports would be far far from 0. Your economics is so appalling bad, I really have to circulate this to everyone who might come into contact with you.

You need tohave more sleep before posting.

[warren mosler]

"If that number is zero (meaning they don't want to add to their multiple trillions of USD financial assets they already have), US net exports will go to zero"

IT'S AN ACCOUNTING IDENTITY.

AND HERE'S ANOTHER ONE FOR YOU:

GOVT DEFICIT = NON GOVT ACCUMULATION OF $US NET FINANCIAL ASSETS

EXPORTS ARE REAL COSTS- YOU WORK AND PRODUCE, SOMEONE ELSE GETS TO CONSUME THE FRUITS OF YOUR LABOR

IMPORTS ARE BENEFITS- SOMEONE ELSE WORKS AND PRODUCES AND YOU CONSUME

IT'S ALL ABOUT REAL TERMS OF TRADE

FOR YEARS WE WERE INCREASINGLY CONSUMING MORE THAN WE PRODUCED (TRADE DEFICIT GROWING)- LOOKED BAD BUT FELT GOOD.

NOW IT'S BEEN REVERSED AND AT THE SAME TIME DOMESTIC OUTPUT GROWTH HAS BEEN SLOWING AS WELL.

AND YES, THERE'S AN ELEMENT OF INTERTEMPORAL CONSUMPTION, BUT IT'S VOLUNTARY IS AN IMPORTANT SENSE.

THINK OF THE $ JAPAN COLLECTED FROM US NET SELLING US CARS AT $2,000 EACH. NOW IF THEY TRY TO BUY CARS FROM US THEY CAN GET BACK AT BEST ONE TENTH THE CARS THEY SOLD US, AS PRICES ARE UP BY AT LEAST 10 TIMES THAT, AND IF THEY ACTUALLY DID TRY TO BUY 2 MILLION CARS A YEAR FROM US THEY MIGHT RUN PRICES UP TEN TIME HIGHER AGAIN- NOTE THE DOLLAR DEPRECIATION AND RISE IN US EXPORT PRICES EVEN WITH A RELATIVELY SMALL SHIFT IN THE TRADE GAP.

(YES, THEY EARNED HAVE EARNED SOME INTEREST, BUT THE POINT REMAINS)

[Ming]

You are getting lost in your arguments.

(a) What is so involuntary about imports and exports? You are getting lost.

(b) if no further accumulationof $s take place, this means no further imports into the USA will take place. Again, you are getting lost.

(c) The issue of "real terms of trade" is an issue, but not a major issue when discussing appetite for ex USA ROW accumulation of $ assets. Again, you are getting lost.

(d) your accounting regards benefits and disbenefits from trade (imports and exports) is still incomplete. you may be talking about some "psychological&qu... feel, but incomplete it still is. you speak as tho trade transactions are onesided transactions. So your arguments are still incomplete.

(e) I somehow thot you would bring up cars. My only point is : cars are not HOMOGENOUS products. Your argument is still lacking. I have no idea where you get the figure "10x" from. ~Hence, again more questionable data.

(e) the USA is not consuming more than its producing. The balancing item is debt into the future, and disbursement of past accumulated assets. Again, questionable economics.

(f) the government deficit identity is not relevant to what you have to say. Its something weighing on your mind perhaps, but its not relevant to what you have to say.


Look, you made a good try, but your points are incoherent, incomplete, premised on inadequate economic and accounting grounds and hence compromised.

[warren mosler]

net trade is a function of realized desires to accumulate fx. you can not net export unless someone offshore decides to accumulate your financial assets.

look at it this way. if someone offshore sells goods or services to the US it either spends the funds on US goods and services (no trade gap in that case) or it doesn't (trade gap and foreign accumulation of $US financial assets) This is an accounting identity as well.

so yes, if no further accumulation takes place- trade gap goes to 0- imports and exports net to 0

yes, real terms of trade are not a consideration when, for example, China buys $US. my point is that these decisions do alter real terms of trade, and in this case they are going against us

exports are real costs, imports real benefits- no getting around that

consider 10x just an example of what can happen. it can go the other way as well. point is, again for example, japan has 'decided' to accumulate over $1 trillion in $US financial assets in return for shipping us 'boat loads' of cars and other products for the last 60 years. so far that has net reduced their standard of living and net increased ours, and they have far less than a guarantee they can get real value for their $1 trillion if they decide to spend it. For example, they can buy a lot less crude oil with it than they could have 30 years ago, etc.

current year US consumption is exceeding output. yes, that may change in the future, but not necessarily. it's a matter of public policy.

you are entitled to your opinions as well.

seem my 'mandatory readings' at moslereconomics.com?