August’s trade gap was the biggest in 14 years. That’s probably good news
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The U.S. Census Bureau reported Tuesday that imports of consumer goods in August hit their highest level on record. Same goes for imports of food and beverages. All told, the trade gap widened in August to $67 billion — the highest level in 14 years.
For an economy that’s still struggling to recover, let alone expand, that trade deficit number might actually be good news.
The fact that imports to the U.S. are rising says a lot about how far the economy’s come since the start of the pandemic, said Eswar Prasad, professor of trade policy at Cornell University.
“Economic recoveries are usually associated with increases in demand for goods and services produced both domestically and abroad,” Prasad said.
That increasing demand for imports is a sign that consumers have more purchasing power.
“It’s a sign of rising consumer confidence, [and] it’s a sign that firms are buying imported inputs that they may need to produce things that will become tomorrow’s exports,” said Emily Blanchard, a professor at the Tuck School of Business at Dartmouth College.
Harvard economist Ken Rogoff said the trade gap is widening because exports are not rising as quickly as imports. And that could complicate the recovery.
“We need the rest of the world to demand more of our stuff to help our recovery,” Rogoff said.
This month’s gap is a sign that the U.S. is recovering faster than many of the countries we trade with. Rogoff said the U.S. could lose that lead if job gains taper off, if a second stimulus package never arrives or if the virus picks up again.
“I expect in the next few months our recovery’s going to slow down quite a bit.
Still, there are reasons to be optimistic about exports in the long run. Blanchard said the U.S. is a net exporter of services, such as travel, financial and digital services.
“This is great. This is a source of comparative advantage,” she said. “If that means that we produce fewer T-shirts in the U.S., then I think that’s probably OK.”
Blanchard said the COVID-19 pandemic has made American digital services, like cloud computing and video conferencing, even more valuable.
COVID-19 Economy FAQs
How many people are flying? Has traveled picked up?
Flying is starting to recover to levels the airline industry hasn’t seen in months. The Transportation Security Administration announced on Oct. 19 that it’s screened more than 1 million passengers on a single day — its highest number since March 17. The TSA also screened more than 6 million passengers last week, its highest weekly volume since the start of the COVID-19 pandemic. While travel is improving, the TSA announcement comes amid warnings that the U.S. is in the third wave of the coronavirus. There are now more than 8 million cases in the country, with more than 219,000 deaths.
How are Americans feeling about their finances?
Nearly half of all Americans would have trouble paying for an unexpected $250 bill and a third of Americans have less income than before the pandemic, according to the latest results of our Marketplace-Edison Poll. Also, 6 in 10 Americans think that race has at least some impact on an individual’s long-term financial situation, but Black respondents are much more likely to think that race has a big impact on a person’s long-term financial situation than white or Hispanic/Latinx respondents.
Find the rest of the poll results here, which cover how Americans have been faring financially about six months into the pandemic, race and equity within the workplace and some of the key issues Trump and Biden supporters are concerned about.
What’s going to happen to retailers, especially with the holiday shopping season approaching?
A report out recently from the accounting consultancy BDO USA said 29 big retailers filed for bankruptcy protection through August. And if bankruptcies continue at that pace, the number could rival the bankruptcies of 2010, after the Great Recession. For retailers, the last three months of this year will be even more critical than usual for their survival as they look for some hope around the holidays.