US Trade Deficit Is Shrinking!
WOULD you believe that the United States trade deficit has vanished? That we may even be running a very modest trade surplus?
The public perception is the opposite; hence, how does one arrive at such a conclusion?
For 1991, the merchandise trade deficit was $66 billion; this is the figure most Americans think is our "trade deficit." But exports and imports of services are not included. The US had a surplus in services for 1991 of $43 billion. This would bring the goods and services trade deficit down to $23 billion. The final number must also be altered by the estimated underreporting of exports for 1991 - $20 billion - according to a study by a combined public and private sector group of experts. Putting these th ree figures together gives a very modest trade deficit of $3 billion (in a nearly $6 trillion economy). Our services exports are also notoriously underreported and would no doubt increase our trade surplus for 1991.
The most accurate and responsible statement about our trade balance is that it is either zero or so close to that as to be disregarded. Notwithstanding surprisingly good figures, we should not be complacent.
Our goods exports were up 74 percent in 1991 to $417 billion, and our service exports were up 14 percent to $134 billion. Our goods exports have doubled in the past five years, far outstripping the closest rival in export growth, Germany, whose exports only rose 25 percent - Japan trails both the US and Germany.
The typical reaction to the above: "You've got to be kidding!" The main reason for the impression that we have a huge trade deficit is that the merchandise trade figure comes out monthly and frequently is incorrectly described as the trade deficit. Frequent misuse has made it believable. "Merchandise" for this purpose is anything tangible - manufactured goods, chemicals, timber, ore, etc.
But the definition excludes "services," which includes professional fees, financial services, tourism, health and education services. The US is the largest exporter of services in the world. It is as much "trade" as exporting a piece of machinery and should be included in the monthly trade figure.
Unfortunately, the statistics for services are buried in the current account, which is released quarterly. That number includes the merchandise figure, services, returns on investments from abroad (and payments made to foreign investors), plus unilateral payments, such as incoming payments from allies in the Gulf war. By excising services from these other statistics and then matching the figure with merchandise statistics, the goods and services trade balance can be described. Our method of keeping and p ublishing records is dangerously out of date.
With respect to underreporting, the National Research Council concluded that our imports data were vastly superior to our exports data. More documentation is needed to bring goods into the US than to send them out. The head of the National Research Council has suggested that a figure of $20 billion would be a conservative number for underreporting of goods exports for 1991.
As our exports of both goods and services grow, we need more markets opened. The folks that proclaim, "Let's take care of America first" often miss the point. Over the past several years, US exports have grown far faster than any other country's. Trade agreements that open markets for American goods and services are highly beneficial to the US. Opening more foreign markets is truly an "America First" policy. But we can't open new markets abroad without opening our own domestic market further.
Don't let the Cassandras mislead you. "America First" is already a fact. The challenge is keeping it first by opening more markets to our very efficient exporters.