Americans generally buy more from foreigners than they do from us, a pattern that stretches back decades. But changes in the trade deficit can tell a story about what’s happening in the global economy, depending on whether the gap between the value of the goods and services the U.S. imports over the stuff we export is growing or shrinking. Figures released Tuesday from the Commerce Department show the trade deficit widened slightly in May, to $41.9 billion. Why?
“First of all, the U.S. dollar has been stronger against foreign currencies, and that puts a break on U.S. exports,” says Douglas Irwin, an economics professor at Dartmouth College.
In addition, “you have a slowing down in the emerging markets, as well as slow growth in the rest of the advanced world,” says Ted Truman, a senior fellow at the Peterson Institute for International Economics. “That means our exports have been growing less rapidly.”
The value of imports dropped slightly, too, though not as much as exports. In general, strong American demand for imports is actually a sign of a strong economy, counter-intuitive as that may seem, says Dan Ikenson, director of the Cato Institute’s Center for Trade Policy Studies.
“We tend to import more when our economy is growing, because consumers have more money to spend and businesses expand production,” he explains.
That’s in contrast to the recession years.
“One of the features of the global financial crisis was that growth, especially in emerging economies, remained pretty strong,” says Robert Lawrence, a professor of international trade and investment at Harvard’s Kennedy School of Government. “So we were able to maintain some of our sales to the rest of the world. In effect, that kept our economy slightly stronger than it would otherwise have been.”
So while exports will always be an important slice of our economic pie, Lawrence says for the U.S. to continue its recovery, more demand will have to come from spending at home rather exporting abroad.
“We’re back to a pattern where we support them,” says Lawrence. “Our growth stimulates and sort of stabilizes them, rather than the reverse.”
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