Fisher Investments Editorial Staff
Trade, US Economy

Trading Up

By, 08/12/2010
 

Story Highlights:

  • The US trade deficit rose to $49.9 billion in June as imports increased and exports slightly dipped.
  • This will likely weigh on the upcoming US Q2 GDP revision, but past GDP figures don't dictate what comes next.
  • Importantly, global trade continues to rise, with many countries seeing large jumps in both exports and imports.
  • Too much focus on the trade balance instead of overall trading levels takes a narrow view in a much interconnected world.

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San Francisco just had its coldest July since 1971, and the gloomy weather doesn't seem to be dissipating. A similar gloom seems to have settled over economic news: Tuesday, the Federal Reserve stirred fears the US recovery was weakening, and those fears were compounded Wednesday as economic news out of Japan and China disappointed and data showed the US June trade deficit widened more than expected. 

The US trade deficit rose to $49.9 billion in June as imports increased and exports slightly dipped. This will likely weigh on the upcoming US Q2 GDP revision, which counts imports as a detractor to growth—a questionable calculation since rising imports reflect robust global trade. 

But numbers aren't everything, especially one measuring what has happened. If past GDP figures dictated what came next, there would never be growth following contractions or acceleration following deceleration. Moreover, concerns the trade deficit hampers US job creation are overwrought. Historically, trade deficits and healthy employment have coexisted just fine. 

In looking at June's trade data—exports decreased about 1.2% from May while imports gained about 3%. Monthly trade balances can be volatile—constant currency exchange fluctuations are a factor—so export levels falling a month or two months isn't necessarily troubling. (Note: Exports are up 17.7% year-over-year.) Further, June's export levels may have been impacted by Chinese exporters pushing to get goods out the door before the expiration of a Chinese export tax rebate. As with many government interventions in free markets, the result tends to be skewed data.  

Importantly, global trade overall continues to rise, with levels rebounding sharply from 2009 lows. Notably, many countries have seen large jumps in both exports and imports (even China's imports are up almost 90% since February 2009's low). By nature and logic, some countries will carry deficits while others surpluses, but history hasn't concretely shown surplus countries are economically stronger than deficit countries. In fact, the opposite is often true. 

In looking at the world as a whole, rather than individual countries, cross-border consumption is generally good for everyone. When we consume foreign goods, we help generate labor and capital demand in other countries, whose citizens and companies can in turn generate demand for our goods and services. 

Too much focus on the trade balance instead of overall trading levels takes a narrow view in today's interconnected world. Overall trade levels trending higher support global economic growth—and a more robust global economy is better for global investors.

 

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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