U.S. Trade Gap Falls Unexpectedly

[RedStateDem]

http://story.news.yahoo.com/news?tmpl=story&cid=568&ncid=749&e=1&u=/nm/20040713/bs_nm/economy_dc

WASHINGTON (Reuters) - The U.S. trade deficit narrowed unexpectedly in May as stronger growth overseas and the weak U.S. dollar helped propel exports to record levels, according to government data on Tuesday. Analysts said the smaller-than-expected trade gap would cause them to boost their second-quarter U.S. economic growth forecast. The May trade gap of $46.0 billion was below a median estimate of $48.3 billion made by Wall Street analysts surveyed before the report.

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The article kind of glosses over the most important factor: *STRONGER GROWTH OVERSEAS*. That appears to mean that an improvement in the US is tied not to sound economic policy, but rather to our weakness relative to our trading partners (i.e., "the weak U.S. dollar")

Trying to remember by econ classes... Doesn't a high export of capital increase the *amount* of money imported, but generally dimish its *value*? Kind of reverse form of "supply & demand," which is somewhat deflationary.

Well, let's see how this gets spun in the next few days.

[truthisfreedom]

1. hey, i like it. that means i get to make money selling overseas, and bush

still looks weak. which he is. because he sucks.

[RedStateDem]

2. sorry... meant "which is somewhat *inflationary*"

The increase in cash imports (which is what exports producs) increases monetary supply and decreases capital goods. The result is inflationary.

Don't know how much the reduction in trade gap will affect the inflationary trends, but Greenspan may be much more cautious in the next Board meeting, in view of this, and the poor jobs report last month. Any hesitation on his part may signal his understanding that the economy may be flagging.

RedStateDem

[Ernesto]

3. Hi RSD

Good to hear from ya!

[robcon]

4. The economic effect is simpler than that.

When the value of the dollar declines relative to other currencies, the cost of imported goods (in dollar terms) goes up. Ergo, inflationary trend.

What "high export of capital" are you referring to?

Exports of U.S. goods and services tend to increase when the dollar declines in value, because U.S. goods are cheaper to purchase by foreigners. That's probably a major reason for the narrowed trade gap.

[RedStateDem]

5. was referring to the industrial materials in the article (see below)

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U.S. exports jumped nearly 3.0 percent to a record $97.1 billion, as overseas companies stepped up purchases of capital goods and industrial materials ranging from civilian aircraft and industrial engines to computers and drilling equipment. U.S. auto and auto part exports also set a record.
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In the extreme (the very very far extreme) suppose all manufactured goods in the US were exported, resulting in a huge import of money from abroad. So much money, but nothing to buy with it (everything has been exported!). Thus, money becomes less valuable--again, in the extreme. But imports & exports function on a continuum and do not only exist at the extremes. So my point is that even a modest increase in exports (resulting in an influx of money) makes the money current at home slightly less valuable (inflation!). It has the same effect as if exports stayed stable, but more money was printed.

This happened in Japan in the 1980s. What appeared to them to be a VERY favorable balance of trade with the US ended up like the scenario above--lots of money imported to Japan, but nothing to show for all the hard work, resulting in the "lost decade" of Japanese economic growth. An exploitation of their workers, in the extreme.

Just my economic ramblings. I appreciate your insights.

RedStateDem

[robcon]

8. I don't get your analysis.

If we exported "everything" we make we would have enormous reserves of foreign exchange, and could import anything we liked. That would be a fine situation.

What happened in Japan in the 80's was that they had a chronic trade surplus, but didn't use those dollars to import much into Japan, trying to keep the value of the dollar up and the yen down. They avoided transforming their dollars into foreign exchange, and they held a lot of dollar-denominated assets (e.g., dollar-denominated banking accounts, U.S. Government t-bills, and they purchased U.S.-based "trophy" assets such as the Rockefeller Center and the Pebble Beach Golf Course.) Since the U.S. economy works in far less "lockstep" fashion, that would not be possible for American trade policy.

[Wright Patman]

6. Chinese businessmen

have been known to buy entire dormant factories in this country, have them disassembled and shipped to China where they are still "viable" due to slave labor. I would call that "export of capital" even though it (temporarily) makes the trade deficit look smaller.

[RedStateDem]

7. Man, talk about outsourcing!

!

[bleowheels]

9. Outsourcing was the first thing that I thought of! Boosting their...

economies at the expense of ours. x(

[lil-petunia]

10. this is not good news

it also means that we are buying less from abroad.

Not because we are hiring techie workers to build things, but because deep inside, people know that our economy is in a bushfamilyshitter. Just like daddy's little problem.

By spending less, by the dollar tanking, we are in a clear no growth era. Sure, Mac's will hire and abuse the older workers and keep them part time to avoid medical insurance, but those jobs add little to our economic security and growth.

[nagbacalan]

11. Far too much is at stake for them to not outright lie. Do you believe the

delayed PPI numbers?