Recession is Balancing Global Trade — Temporarily

According to Mark Gongloff, The WSJ's "Ahead Of The Tape" columnist, "A deep recession has been a brutal way to close [the U.S.] trade gap ... and in any event, it isn't sustainable". Reporting in today's column Mr Gangloff states that the U.S. "deficit is down from $64.9 billion a year ago, largely because, when global trade collapsed last year, imports fell much harder than exports. At their worst, U.S. exports were down 22% from a year earlier, but imports were down 31%. [and that] A smaller deficit is a long-term benefit for the U.S. economy because it likely means the U.S. doesn't have to borrow as much from the rest of the world to finance its consumption."

The factors cited for this phenomena -- and its volatility -- include:

  • "U.S. demand for foreign goods will rebound with the economy."
  • "Firmly closing the gap will require Americans to permanently trim their appetite for overseas goods and the borrowing that entails, while China and other major exporters lift demand for U.S. goods."
  • "This trend could be helped along by a weaker dollar that makes U.S. exports cheaper overseas."

In a rather ironic close, Mr Gangloff points out that "the flood of government debt and rising risk appetites drive interest rates higher ... That [in turn] hurt consumer demand for imported goods and prove a short-term stumbling block to recovery, but would narrow the trade deficit and help the economy's long term health."

Very interesting observations -- especially as a macro-economic back-drop to global sourcing and trade.

William Busch

Share on Procurious

Discuss this:

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.