Friday, July 10, 2009

Will the U.S. Become an Export Nation?

I likely got ahead of myself with the whole export nation thing, but if the dollar does weaken like many anticipate, then along with the reduced consumption by the U.S. consumer, this trade deficit may flip to positive territory sooner than later. Either way, this will definitely be a plus for second quarter GDP. Bloomberg with the details:

The U.S. trade deficit unexpectedly narrowed in May to the lowest level in almost a decade as exports jumped while imports of crude oil and auto parts declined.

The gap between imports and exports decreased 9.8 percent to $26 billion, the smallest deficit since November 1999, from a revised $28.8 billion in April that was lower than previously estimated, the Commerce Department said today in Washington. Imports fell while exports rose the most since July 2008.

A shrinking deficit signals trade will contribute more to U.S. growth as exports to emerging economies such as Brazil increase. Meanwhile, U.S. demand for imported auto parts was held down in May by production cutbacks and factory shutdowns by Detroit-based General Motors Corp. and Chrysler LLC, based in Auburn Hills, Michigan, two of the nation’s three largest automakers.

Source: Census


  1. ...unfortunately the rest of the world depends on the US consumer, so we're caught in a "who came first, the chicken or the egg" debate. Thoughts on that?

  2. it will be a PAINFUL process as all the imbalances (i.e. our consumption, China's dollar reserves, etc...) rebalance.

    i agree and don't know the answer to what will be the new global growth engine. long term, it needs to be less US and more emerging world, but short-term i have no clue.

    more important than my thoughts, what are your thoughts?

  3. Well Jake, I think that there will have to be a shift in most countries to develop their domestic economies (what China is attempting to do);

    Eventually I think that the China growth story is going to hit a snag as lending comes down and the stimulus ends. The stimulus package has provided a sugar high for the Chinese consumer, but once it runs out, exports will probably not have recovered as the US continues with its deleveraging process. Eventually the bad news will begin to trickle in from the East. They still depend on the US for the majority of their GDP (30-35%) and I don't believe for one second that their stimulus package will provide sustainable growth if the main driver of their economy is still in the toilet (such large scale transformations of economies take years, not months). So we won't be able to count on them as a domestic economy to bail us all out, over the short to medium term. ...

    Over the short term, there will be no one to export to and thus the global economy will remain stagnant. The commodity countries will also suffer as they depend on growth for demand for their raw materials. So global growth will be subdued for a while...

    Longer term, our manufacturing base will need to resurrect as we move into green technology and improved health care technology; we need to move further away from a service economy to a manufacturing economy. Eventually, the only country I can see "somewhat" replacing the US is... China, but they need to conduct social reforms such as the presence of a safety net for retirees, etc. If not, chinese consumers won't spend as much and their savings rates will stay high as they single-handedly save for retirement. Aside from them, there won't be a huge global consumer that everyone exports to, rather everyone will develop their domestic economies as they move away from their export based economies while we will move away from our consumer based economy to manufacturing (more export oriented)....all in all, the world will be moving back to equilibrium and it will take a while..... 3-6 yrs.

    If you have a minute, check out my web site: it's got my thesis on the financial markets....

    Have a great weekend,