Thursday, June 9, 2011
What does it mean when U.S. exports of goods and services rise at more than a 20% annual growth rate, and the gap between imports and exports narrows compared to what it was in the heydays of 2004-2006? It means that foreigners are less willing to buy our bonds, and less willing to lend us money. We keep importing lots of stuff, for which we pay them, and they therefore have to buy lots of stuff from us. But nowadays they are buying less of our financial assets and more of our goods and services. That's the way it works: for every dollar foreigners earn from selling something to us, they have to spend a dollar on something here in the U.S., whether it be stocks, bonds, real estate, loans, movies, or consulting services. If they decide to buy fewer bonds and otherwise lend us less money, they have to buy more of something else. So the narrowing of the trade gap per se really doesn't mean very much.
What's important is that our exports are growing at strong double-digit rates, because that means the export sector of our economy is picking up some of the slack from the moribund construction and financial sectors. It's also nice to see that imports are growing at double-digit rates, because that means that consumers are getting back on their feet. All told, the trade picture is looking good.
Posted by Scott Grannis at 8:53 AM