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Home Publications Blogs Beat the Press Is the Business Press Prohibited from Talking About Falling Imports as a Cause of Growth?

Is the Business Press Prohibited from Talking About Falling Imports as a Cause of Growth?

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Saturday, 29 January 2011 11:10

Politicians routinely say things that are not true to push their trade agreements. For example, they call them "free trade" agreements (everyone likes freedom) even though they do little to free trade in highly paid professional services (e.g. doctors' and lawyers' services) and actually increase protection in some areas like copyrights and patents.

They also say silly things about exports creating jobs, without pointing out that it is net exports (exports minus imports). If any politician was actually stupid enough to believe that exports by themselves create jobs then he would be advocating imports of hundreds of billions of dollars of goods from Mexico and Canada and then re-exporting them to create jobs. Even the people who hold high elected office don't believe anything that crazy.

Unfortunately the media largely cooperate with the politicians' efforts to push trade deals. Hence they refer to them as "free trade" deals and they rarely point out that anyone talking about job creation from exports, rather than net exports, is being misleading. 

The media seemed to be in the trade agreement promotion mode in its reporting on the 4th quarter GDP report. The second most important factor (after consumption) in the 3.2 percent growth rate reported for the quarter was a 13.6 percent drop in imports. The domestic production that replaced these imports added 2.4 percentage points to growth for the quarter. This fact seemed to go virtually unmentioned in the reporting on the GDP report, as though the media did not want to put the idea in people's heads that lower imports means higher growth.

As a practical matter the fall in imports was almost certainly associated with the slower pace of inventory accumulation reported for the quarter. It is likely that inventory accumulation will rise to a more normal rate in the first quarter of 2011. This will be a boost to growth, however the corresponding jump in imports will be a largely offsetting subtraction.

Comments (7)Add Comment
...
written by izzatzo, January 29, 2011 11:37
If any politician was actually stupid enough to believe that exports by themselves create jobs then he would be advocating imports hundreds of billions of dollars of goods from Mexico and Canada and then re-exporting them to create jobs.


Now he's done it. Just when the pols were ready to believe it was possible to import competitive health care, this will be used against Whose Your Nanny to prove that all he was really doing was importing it in order to export it for more profit funneled to his crony friends in the health insurance sector.

Stupid liberals.
Intermediation and currency arbitrage
written by Ken Houghton, January 29, 2011 11:49
" If any politician was actually stupid enough to believe that exports by themselves create jobs then he would be advocating imports hundreds of billions of dollars of goods from Mexico and Canada and then re-exporting them to create jobs. Even the people who hold high elected office don't believe anything that crazy."

True, but "grey market" trading is essentially that. I wouldn't want to base a developed economy on that, but a decent portion of an emerging one has certainly been based on less.
Write your own News, We didn't miss it!
written by Robert Oak, January 29, 2011 12:50
Since when has the major financial press gotten it right on a host of economic metrics, especially what policy does what? Your call out and others helps gets the correct answers out there. Yes indeedy, beyond the negative impact on private inventories, the deacceleration of the trade deficit was #2 component to create a stronger Q4 GDP!

We didn't miss the trade deficit and if these people bothered to even read the BEA report, they did not either.

Here's The Economic Populist's Q4 GDP overview (with many graphs) http://www.economicpopulist.or...stimate-32
correction #1
written by Robert Oak, January 29, 2011 1:26
typo, the deceleration of the trade deficit was #1 component contribution, not #2.
Not Surprising in the Slightest
written by libhomo, January 29, 2011 5:51
The rich Republicans who own the corporate media and the rich Republicans who advertise on it just love corporate controlled trade deals. Telling the truth about the damage done to our economy by imports is as censored as Soviet Pravda.
Request for clarification; also grey markets
written by Andrew Burday, January 30, 2011 8:27
I'm confused. "The domestic production that replaced these imports added 2.4 percentage points to growth" and "the fall in imports was almost certainly associated with the slower pace of inventory accumulation reported for the quarter." But also: "inventory accumulation will rise to a more normal rate in the first quarter of 2011. This will be a boost to growth, however the corresponding jump in imports will be a largely offsetting subtraction." If the expected jump in imports will offset the growth in inventories, why wasn't the fall in imports offset by the fall in inventories? I don't know much about national income accounting; what am I missing here?

Ken Houghton, it seems to me you're missing Baker's point. Grey marketeering is a form of arbitrage. E.g. Nikon may be willing to sell cameras in (making this up) Indonesia at a significantly lower price than in the USA. It may then be profitable for a large American retailer to buy Nikons in Indonesia and import them to the USA. That will be a profitable trade for the Indonesians. They paid wholesale, sold retail (Indonesian retail, which is less than American wholesale). What Baker had in mind was the absurd example of importing and re-exporting goods when no such price difference exists. If exports necessarily boosted growth, that would boost growth. It obviously doesn't.
Does truth count?
written by Breukelen, January 30, 2011 12:38
Comparative advantage is the justification for "free trade," a great PR term for the exchange of goods and services between countries.

The core of comparative advantage is that each nation concentrates on producing what it is most efficient at, benefiting every participating country. Crucially, capital and labor must stay at home: they cannot--repeat, not--be internationally mobile. (If they are, then individual countries and their citizens can be--and are--losers from the resulting distorted trade.)

NAFTA and its ilk violate these conditions, specifically by providing international mobility to capital. They are globalization, rather than internationalization, agreements.

Since there is no elected global government (whether feasible or not, good or not), this mobility undermines sovereignty and shifts political power from citizens to corporations.

These truths are unlikely to be discussed in the corporate media. But they must be addressed in forums like this one in order to understand what's at stake.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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