A Broader Perspective on Trade

As is their wont, most media covering Friday’s US international trade report paraphrased the first sentence of the Census Bureau’s release, noting the trade gap shrank in the month. And it’s true: The trade gap fell by $2.6 billion. As we’ve written, the trade gap isn’t a very useful tool in assessing actual economic health. It might help one set expectations for GDP—due to GDP’s wonky net exports component. But more important are the specifics.

Behind April’s declining trade gap (positive for GDP) stands a -0.8% decline in exports, but one offset by a -1.6% decline in imports. Not a stellar reading. And with many preexisting fears surrounding Europe ongoing, many might be tempted to presume the two are related—and posit Europe’s weakness is poised to cross the Atlantic. And many media reports cited a roughly 11% dip in exports to Europe. So there you have it, right?

We’d caution against leaping to such conclusions. As shown in Exhibit 1, trade data are subject to rather sharp swings, so a monthly gyration to the downside isn’t very surprising. Simply, trade is just very volatile.

Exhibit 1: US Total Trade (Exports Plus Imports), Percent Change from Prior Month

Source: US Census Bureau, April 2007 – April 2012

April’s total trade downshift follows a March surge to an all-time high (see Exhibit 2). As such, fretting about a month’s decline seems a bit premature.

Exhibit 2: US Total Trade (Millions of USD)

Source: US Census Bureau, January 2000 – April 2012.

As it pertains to Europe, keep in mind the European Economic and Monetary Union (EMU—the 17 nations using the euro) constitutes roughly 13% of US trade—down markedly from prior decades.ⁱ And, comparing 2012’s first four months with 2011’s, US exports to the EMU are up 1.6%.