New Geography

Tag: Trade

  • Mixed News on Trade

    The Department of Commerce released trade balance numbers for January this morning, reporting that the monthly deficit jumped to $46.3 billion, up from $40.3 billion in December. Economists had been projecting a deficit of $41.5 billion. The larger than expected number may lead some economists to “lower their estimates for economic growth in the January-March quarter based on the wider deficit.”

    However, buried within the dark clouds is a silver lining. U.S. exports actually hit an all time high of $167.7 billion during the month, potentially showing signs of a strengthening economic recovery. This is up from $125.4 billion in January, 2009 and $144.7 billion in January, 2010. American exporters appear to be on a roll, and gaining momentum.

    Exports of services also continues to be a point of trade strength for the nation. While year over year increases were smaller than those in overall exports (47.2 billion, up from 44.2 billion in January, 2010) the nation actually had one month trade surplus of $13.4 billion in services. This is up from past years, and is not an anomaly- the nation has marked a trade surplus in the services sector throughout the past two years.

    The increase in the size of the deficit can largely be attributed to issues in two areas; petroleum and consumer goods. As oil prices continue to rise, the cost of oil imports have surged as well. In January alone, the nation imported 34.9 billion in petroleum products, leading to a deficit of $26.7 billion. This represents an increase of 21.5% over last January, and up 4.7% over the previous month.

    The rise in the consumer goods deficit may actually be good news, of a sort. While the deficit itself is disconcerting, the detailed numbers show that imports of apparel, textiles, appliances, and other household related products are up notably. While increased imports in these sectors serve to worsen our trade balance with China (up to $23.3 billion in January, from $20.7 billion in December), increased demand for such retail goods could be a sign that the American economy, largely centered around consumer spending, is starting to catch some momentum again. According to economist Joseph LaVorgna, interviewed by CNN, while the deficit is wider, “the numbers actually imply a very healthy economy… The gain in imports was in every category. Domestic demand is still very firm and producers are rebuilding their inventories.”

  • Obama Administration to Repeat Protectionist Errors of 1930s?

    In a potentially ominous development, Television New Zealand reports that the Obama government has postponed free trade agreement discussions under the proposed Trans-Pacific Strategic Economic Partnership (P4) with New Zealand, Singapore, Brunei and Chile. Along with the United States, Australia, Peru and Vietnam were to have been involved in the expanded free trade area. It is reported that the postponement is related to an assessment of trade policy by the Obama administration. An inward turning US trade policy, favored by President Obama’s organized labor allies even before the economic meltdown, could set the nation on a protectionist course not unlike the measures that prolonged the Great Depression.

  • In the Doldrums: Another Economic Indicator Heads South

    Lost amidst headlines of bank nationalization, credit market woes, and a worldwide equities rout, was news that the Baltic Dry Index, an index seen as a measure of world trade flows and future economic activity, has been in freefall this week. A drop of 8% on Tuesday was bookended by drops of around 11% on both Monday and Wednesday.

    According to the Guardian, the index is

    “seen as a good leading indicator of future economic production levels because it charts the cost of freight movements in 26 of the world’s biggest shipping lanes of “dry” materials, such as coal, iron ore and grain which feed into the production of finished goods some weeks or months ahead.”

    Since reaching a peak in July, the BDI has plummeted over 80%, leading to fears that demand for commodities, particularly in China, may be on the wane. This could, reports the Guardian, mean that the “great Asian miracle economy might now be coming apart at the seams, in spite of the official figures suggesting everything is still fine.”

    Agricultural areas throughout the United States, buoyed by recent high prices for commodities, have thus far shown economic strength in the face of increasingly difficult conditions nationwide. The good times may be, if not coming towards an end, facing some sort of moderation.

    Effects of the credit crunch have already begun to show some impact on international commodities trade. Last week, Canada’s Financial Post reported that grain shipments had begun to pile up in ports as international buyers found themselves unable to obtain letters of credit. In the words of one marketing expert, the situation is a “nightmare.” According to experts interviewed by Bloomberg, “letters of credit and the credit lines for trade currently are frozen,” and as a result, “nothing is moving”. Such credit issues, in connection with weakened demand for commodities in a potential worldwide recession and a downturn in international trade, may mean that communities around the nation will soon face a more difficult economic picture.