International Demand for goods and Foreign Trade have been a driving force behind United States’ economic growth. The recent legislative efforts, made by the current democratic administration to get permission for a Fast Track in negotiating trade agreements, amount evidence that trade-and-economic-growth is within the agenda of the Nation regardless of the politics of a singular political party. However, trade agreements are just tools for advancing the goal of economic growth, they do not bring prosperity automatically.
Services sector and manufacturing matter:
Recent data on Employment and Current Account show the needs for trade policies on two industry fronts: services sector and manufacturing. On one hand Service/Business Services account happens to be one of the most vibrant and employment growing sectors within the United States. However, its share remains low as far as Current Account respects. Although there was a surplus in current account for Services, which means the value of exports exceeded the value of imports, the actual share of exports in the balance of trade is still very low. Data on Current Account for the first quarter of 2015 show that Services Exports increased to $181.5 billion from $179.8 billion during the fourth quarter of 2014. That growth in service exports came mostly from activities related to Research and Development, Professional and Management Consulting, Travel for all purposes, and Technical, trade-related activities.
The fact that Current Account shows a surplus in Services sector helps economists in understanding the internal growth in employment levels for that same sector. Data published on July 1st by ADP (a payroll company), show consistently that Professional/Business Services adds more jobs to the labor market than any other sector in the economy. Actually, Professional/Business Services has been leading employment growth since the beginning of the economic recovery since the Great Recession.
Otherwise, during the first quarter of 2015 Goods exports decreased to $382.7 Billion from $409.1 billion due mostly to a decrease in industrial supplies such as Petroleum, Chemicals and Metals products. Nowadays the story about oil prices and its negative effect of the economy are well known. Goods imports also declined to $571.7 billion from $596.1 billion due to import increases in consumer goods –mostly nondurable goods. Generally speaking, the U.S. trade deficit increased to $113.3 billion during the first quarter of 2015. Nonetheless, and in spite of having the deficit rising, Services exports partially offset the changes in Current Account.
Foreign trade makes legislative political economy harsher:
Besides the political economy of the agreements, foreign trade often demands obscure strategies for manipulating the value of the dollar vis-à-vis other currencies while avoiding accusations currency manipulation. On side, exporter demand weak dollar so that they can compete with price overseas. When demand for American products rises overseas due to a weak dollar, exporters have greater demand for their goods, which drives employment growth in the mainland. On the other side, when exporters face strong dollar, their exports decline thereby creating slowdown in job creation. This is partly true for some industries such as manufacturing, however, Services and Professional Business prove to be the counter-evidence. In other words, Services related exports cope with dollar appreciation overseas very successfully.
The flip side of that coin is that when dollar exchange rates are strong overseas, American citizens can afford imports at favorable costs. This very fact makes cost of living cheaper within the United States and therefore it tends to lower the share of basic consumption of household expending. Whenever the cost of basic consumption decline because of lower goods prices, the share of disposable income increases, which increases demand for goods internally.
Thus, institutions –the government- must pick what to favor. Parallel to the economic incentive for cheap imports, national government would weight whom to please by drafting foreign trade policy. Administration may either “restrict” trade so that exporters have an advantage, or the administration may “favor” foreign trade so that consumer get lower prices from imported goods. The former scenario restricts any option of trade and favors employment at consumer expenses. The latter scenario, instead, favors trade thereby pleasing American consumers, which also leaves room for monetary policy and currency manipulation –strategy often used for pleasing exporters. Amongst those two options, the latter seams more feasible for a democratic political system. Indeed, in the actual context of manufacturing industries and exchange rates, Services exports look promising for the American Economy to flourish among international trade competitors.
By the way, it also makes easier for politics to choose winners and losers, given the case in which voters cannot avoid government intervention.
Categories: Macroeconomics, Policy, Politics
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