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
What’s the outlook for vaccine supply?
Chief executives of America’s COVID-19 vaccine makers promised in congressional testimony to deliver the doses promised to the U.S. government by summer. The projections of confidence come after months of supply chain challenges and companies falling short of year-end projections for 2020. What changed? In part, drugmakers that normally compete are now actually helping one another. This has helped solve several supply chain issues, but not all of them.
How has the pandemic changed scientific research?
Over the past year, while some scientists turned their attention to COVID-19 and creating vaccines to fight it, most others had to pause their research — and re-imagine how to do it. Social distancing, limited lab capacity — “It’s less fun, I have to say. Like, for me the big part of the science is discussing the science with other people, getting excited about projects,” said Isabella Rauch, an immunologist at Oregon Health & Science University in Portland. Funding is also a big question for many.
What happened to all of the hazard pay essential workers were getting at the beginning of the pandemic?
Almost a year ago, when the pandemic began, essential workers were hailed as heroes. Back then, many companies gave hazard pay, an extra $2 or so per hour, for coming in to work. That quietly went away for most of them last summer. Without federal action, it’s mostly been up to local governments to create programs and mandates. They’ve helped compensate front-line workers, but they haven’t been perfect. “The solutions are small. They’re piecemeal,” said Molly Kinder at the Brookings Institution’s Metropolitan Policy Program. “You’re seeing these innovative pop-ups because we have failed overall to do something systematically.”
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