43.1 B Jan Trade Deficit - with our weak dollar - why?

Granted China's contribution of $11.5 billion in January is hard to change with the yaun pegged to the weak dollar, and our trade deficit with oil-producing nations has not benefited from the Iraq war, growing to $4.7 billion in January, because the average price per barrel of imported crude oil in January was $28.55, the highest since March 2003.

But why is there not a much bigger slowing in other areas, other countries?



http://ap.tbo.com/ap/breaking/MGAYCQKINRD.html

Trade Deficit Widens to Record $43.1 Billion in January
By Jeannine Aversa
Associated Press Writer

WASHINGTON (AP) - America's trade deficit mushroomed to an all-time high of $43.1 billion in January as sales of foreign-made goods hovered near record levels.

The trade gap reported by the Commerce Department on Wednesday was 0.9 percent larger than the $42.7 billion deficit registered in December. <snip>

Imports of goods and services came to $132 billion in January, the second-highest level on record. Still, that represented a tiny 0.5 percent dip from the record level of imports seen in December. The economic rebound in the United States has fed demand for foreign-made goods.

Exports, meanwhile, totaled $89 billion in January, representing a 1.2 percent decrease from December. That largely reflected weaker demand for U.S. food products. Exports of meat and poultry in January plunged by 40 percent to $379 million, the lowest level since November 1993, as the first case of mad cow disease in the United States stalled beef exports to many countries. <snip>

The Massachusetts senator supported the North American Free Trade Agreement and world trade deals. On the campaign, he has said he would place all trade deals under a 120-day review and wants labor and environmental standards in new agreements. He also would require companies to provide notice before moving jobs to other countries.
Federal Reserve Chairman Alan Greenspan last week said that a weaker U.S. dollar should eventually help narrow the country's swollen trade deficits. He also repeated a warning that "creeping protectionism" could hurt the flexibility of the global economy - something that has played a key role in helping the United States and other countries weather economic hard times. <snip>

Wouldn't the pick-up in exports take some time to show up (particularly since our factories are closed).

Cow finding. There's also a Japanese ban on poultry because of the "bird flu" found in Maryland and some countries aren't accepting our GMO seed.

All this has got to affect our trade imbalance. :shrug: Products of Agri-business are about all we have left to export.

These numbers from the ban are just showing up.

by much of the world now and so I suspect there may be somewhat of a reluctance to buy US goods in the international community for that reason as well...

I saw a chart recently on Elliot Wave International that showed zero correlation between currency levels and trade deficits. It shocked me as I had always bought the standard economic line that a falling dollar meant higher exports. It just isn't so.

I'll see if I can find it again.

O

Here is the chart. I found it cached on google:

http://216.239.57.104/search?q=cache:klW7e4aGukIJ:www.elliottwave.com/features/default.aspx%3Fcat%3Dmw+chart+trade+deficit+dollar+correlation&hl=en&ie=UTF-8

O

...had a very interesting set of articles. "Why America's deficit is hard to turn aroun." I'll give you a few excerts (pages 12-15):

"Although America finds it easier than most countries to fund its external deficit by sucking in foreign capital, its economy has a number of characteristics that make it much tougher than elsewhere to shrink that deficit...The first problem is the sheer size of it (2002 = $1.4 trillion in imports, versus $974 billion in exports, an almost 50% differnce)

"Moreover, Americas have a particular penchant for imports. Back in 1969, two economists, Hendrik Houthakker & Stephen Magee, ntoiced that for nay given rate of economic growth, America's imports tended to grow faster than those of other countries.."

.."The Phenemenon has long perplexed eocnomists. Why should America be more addicted to imports than other countries?" (it's not trade barriers anymore..)

..fast forward 30 years...."In a detailed re-estimation of the statistics in 2000, three econs at the Federal Reserve, Peter Hooper, Karen Johnson and Jamie Marquez found that America's imports rose 1.8% for every 1% increase in overall spending. A 1% rise in foreign demand, in contrast, produced a less than proportional (0.8%) rise in American exports."

..."According to calaculations by Ms. Johnson and Messrs Hoooper & Marquez, a 1% drop in the dollar reduces America's demand for imports by only 0.3% in the long term. A 1% drop in income, on the other hand, reduces imports by 1.8%. So if a drop in the dollar is to make much of a dent in the trade deficit, it would have to be really big. But how big? The estimates differ..."

The article went on to show that some felt 35% was needed to get in back in balance, while another suggested a 43% drop in the dollar would reduce the current account deficit to 2%. A more pessimistic anlysis by Rosenberg of Deutsche Bank suggested a 40-50% drop would be required to get the deficit to about 3.5%. Of course it was noted that the euro would be 2 to 1 over the dollar, and the yen would be 60 to 1. No comments on what the effects of that would be...but I'd profer the US dollar would no longer be the International Reserve Currency in that scenario - or at least several members of OPEC would go to a "petroeuro"...while we pay $5 per gallon of gas...

Anyhow, in a somewhat surprising paragragh, it was stated by the the former chief economist at the IMF:

"The risk of a dollar crash and a subsequent financial meltdown are not neglgible. Discussin the coming fall in the dollar, Mr. Rogoff recently commented: "The world is set to jump off the top of a waterfall without knowing how deep the water is below."

What I find amazing is that economist continue to use the cheap dollar = more US exports/less US imports axoim, despite the fact that is was somewhat called into question 35 years ago, and has now been basically disproven. It just ain't so.

The other issue about the deficit is that in 2003, 20% of the US deficit was oil imports, rising to 25% if you consider other energy/NG/etc. So, $100 billion out of our $408 billion trade deficit in 2003 was imported petroleum products. OPEC is not exactly sticking to their $22-$28 price band, so as long as the US consumes its current energy level, and as long as OPEC tries to maintian their purchsing power without suffering losses from the dollar, the U.S. trade deficit will never come close to being bridged/balanced. Perhaps 35 mpg CAFE standards would help reduce the trade deficit, but the corporate oligarchy will not allow that to happen...

As others have noted, we no longer have enough domestic manufacturing base to offset this imbalance. I dare anyone to go out and find a simple toaster oven that is still made in USA, as opposed to China or some other Asain country.

Bottom line, the US economy does not follow the rules of economics. Mainly due to the dollar's unique role as world reserve currecny/petrodollar. Don't let the pundits tell that a devalued dollar will somehow come even remotely close to reducing our trade deficit.

I wonder when the punditry will realize that each incease in the price of oil reflects an increase the size of our deficit due to OPEC's desire to retain their purchasing power w/out heavy loses...

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Please note the last sentence....

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Feb 20, 2004
'Crude futures prices rise in shortened NYMEX session'
by Sam Fletcher

http://ogje.pennnet.com/news/news_display.cfm?Section=NEWS&ArticleID=1...


"...The average price for the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes slipped by 8¢ to $30.44/bbl Thursday.

"The value of the OPEC basket has been above the $22-28 target range for 108 trading days over the past 8 months," Horsnell noted. "Over the same period, the value of the OPEC basket in euros has stayed within a 22-28 euros band on all just 2 trading days, and on those 2 days it was below the band."

He said, "This is of course just a rather bizarre statistical coincidence. It certainly does not imply that the target band has been secretly switched into euros or that the dollar has lot its primacy in the oil market."

<<<<Sure Sam, that is simply a bizarre statistical coincidence...go back to sleep>>>>

I dare anyone to go out and find a simple toaster oven that is still made in USA, as opposed to China or some other Asain country.


We produce almost nothing. We don't clothe ourselves. We don't produce our own electronics. We've offshored almost everything. What is there left to export? Arts and crafts, perhaps?

I'd be interested to see the trade numbers between other countries. I get the sense that the US is losing trade contracts, from the little bits and pieces I've seen. Bush* has been using his fast track authority to negotiate with countries that provide little to no benefit to our economy. He's paying off IOU's to the "alliance of the willing" countries.

Oh, and there is tiny little problem that could develop from our trade deficit.....

The trade deficit is important because it means the rest of world holds IOUs from the United States, usually in the form of government securities.

In other words, instead of Americans saving in U.S. markets, foreigners are, and interest payments and principle on government debt are flowing outside the country.

Since the market for government bonds affects the interest rate, foreign countries could trigger a market crisis in the United States if they suddenly try to unload their U.S. securities. A sudden sell-off of Treasury bills would pressure interest rates to rise dramatically, slowing economic growth.

http://www.cbsnews.com/stories/2004/03/10/national/main605060.shtml

We're doing our best to go down the deflationary spiral like Japan did and is coming out of. Our deficits are out of control. Greenspin has lowered interest rates as low as possible. Letting the dollar devalue is the only thing left to keep deflation in check. The Shrubbite spin that the devaluing dollar is to increase exports. The problem with that is that we've lost too much manufacturing to increase export or meet domestic production. The only group that benefits from this arrangement are the extremely wealthy in the US.

The only reason that the US economy hasn't completely collapsed is foriegn investment is still coming in. When foriegn investors realize that markets like Japan or Germany which both increased exports, are better deals then we are really screwed. The big question is whether the result will be runaway inflation or deflation? There are possibilities for both and triggers for both that seem to be close to being coming about. The only thing that I know for sure is that the current policy is not sustainable. Something is going to give soon and it won't be pretty.

We need big changes in tax policy to lower the deficit and increase foriegn investor confidence. We need alternative energy sources and conservation to lower dependence on foriegn sources of oil. We need trade agreements that fight unfair subsidies such as lax environmental and labor standards. We need labeling that identifies countries of origin on food and products with a requirement that so much of the product has to be made in the US to be considered US. We need education and research programs to increase US worker productivity. We need protection for US intellectual property so that we benefit first from our R&D. We need rules that keep offshore companies from getting US government dollars. We need a real health care program to lower medical insurance costs lowering costs to US employers. We need a government that is not a corporate whore but will support small businesses that provide invovation and real US job growth.

Sorry for the rant but when I read the article about the trade deficit in today's business section, it all kind of bubbled up.

Trade relationships don't change on a dime -- in many cases the price point is not that important. There are some capital goods that we just don't know how to make anymore, or never did, but our economy depends on them, so we have to buy them even if they become more expensive.

Billy Joels' Allentown is still relevant to this mess. I agree we don't produce anything-those pennsyvania steel mills are rusting and empty hulks-the social cost of their demise has been huge-how can anyone afford stuff if you are in creditcard debt to begin with. The communities which fed the steel mills with workers have large social welfare and crime concerns -BTW Allentown is a dangerous city now-all as a result of the failure to provide steady employment-if the weak dollar didn't work 30 years ago it is not going to work in this climate-we need a manufacturing base to survive.

a service economy (based on providing services to one another) rather than a manufacturing economy (where we produce things that we consume and that we export for consumption.)

Hard to export service. Yet we keep consuming products.

A simplistic view, perhaps, but it seems to me that we have been moving this direction for a long time and it is structural - not tied to the value of the dollar.