The Jobs' Surge Exposes 'Trade Deficit' Handwringing As Mindless

The Jobs' Surge Exposes 'Trade Deficit' Handwringing As Mindless
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So much for the notion that higher trade deficits lead to higher unemployment levels. Last month, the U.S. economy created over 220,000 jobs. Meanwhile, the country’s trade deficit widened, on track to its highest level in nine years.  This is far from the first time that imports and job creation both increased. It happens almost every month. The seeming contradiction illustrates the fact that imports do not increase unemployment. They actually help reduce it.

More imports do not equal fewer exports, and they certainly do not equal fewer jobs. The latest jobs data from the Department of Labor confirms that: In November, the U.S. economy maintained a 4.1 percent unemployment rate, the lowest rate in 17 years. But the U.S. trade deficit has hit a nine-month high, the highest level of imports in years.

It should not be surprising that trade deficits go up while unemployment goes down. In fact, higher levels of imports are essential to economic growth. Companies requiring inputs toward a finished product need to get the best price, quality and service levels they can to be competitive. That means they need the widest possible network of potential suppliers, including foreign suppliers. Being able to import is crucial to being able to efficiently make products for export. Imports are not a necessary evil; they are a necessary ingredient.

The proof is in the data. In October, according to the U.S. Census Bureau, the trade deficit hit $48.7 billion, up $3.8 billion from the previous month, primarily because of an increase in the goods deficit. That put the combined U.S. goods and services deficit up almost 12 percent from the same period in 2016 – even as the national economy created 174,000 jobs a month this year (and 187,000 jobs a month last year), and continued to reduce unemployment rates. 

An even closer look into the Census Bureau data gives a clearer sense of how increased imports actually bolstered the U.S. economy. It shows that the biggest increase in imports by far is among industrial supplies and materials, which went up by $1.8 billion, more than twice the increase in imported consumer goods. In other words, U.S.-based companies were importing more in order to producemore – which is what leads to a higher standard of living. (And by the way, to more exports.) Imports were increasing because U.S. businesses were investing more.

A positive relationship between trade deficits and strong economies is hardly an aberration. In 2006, for example, the U.S. economy was in the midst of an economic surge. At the same time, the country’s trade deficit hit its highest level in history. In 2009, on the other hand, when the U.S. economy was in the midst of the great recession, the country recorded its lowest import deficit in recent years.

Economic booms in the late 1980s and late 1990s were accompanied by steep increases in trade deficits. On the other hand, the last time the United States recorded a trade surplus was in 1975, when the U.S. economy was stuck in a recession in the middle of a decade characterized by stagflation.

Running trade deficits in the midst of rising prosperity is not limited to the United States. Over the past two years, more than half of the 35 nations belonging to OECD, the rich countries’ club, have run trade deficits, as have more than half of the G7 countries. But Mongolia, Kazakhstan, and Angola all ran trade surpluses. Which economy would you rather have?

The opportunity to import actually helps achieve productivity and prosperity more than the opportunity to export, because it does more to broaden choice. Importing widens the circle of potential suppliers competing to meet the needs of intermediate producers. The companies that imported more industrial supplies and materials in October were doing it in order to make finished products – and create jobs. When a country opens its borders to imported goods, it facilitates comparative advantage, importing inputs from countries that are more efficient at making them – and thereby making domestically-produced final products more competitive.

Growing an economy is not a matter of turning imports into exports. Robust economies do more of both.

Allan Golombek is a Senior Director at the White House Writers Group. 

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