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Home Publications Blogs Beat the Press The Washington Post Doesn't Know that the Trade Deficit Is Affected by Imports

The Washington Post Doesn't Know that the Trade Deficit Is Affected by Imports

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Friday, 12 October 2012 05:13

This is what readers of an article on the U.S. trade situation would conclude. The article notes the large U.S. trade deficit, but then focuses exclusively on the role of increased exports in reducing the deficit. In fact, in order to get the deficit down to a more sustainable level we will almost certainly need both higher exports and lower imports.

Incredibly, the article never once mentioned the value of the dollar. This is by far the most important determinant of both our exports and our trade deficit. If the dollar were to fall by 20 percent against other currencies, as a first approximation it will reduce the price of U.S. exports by 20 percent relative to the price of goods produced elsewhere. All economists agree that lower prices increase demand. It is bizarre that the piece never discusses the over-valuation of the dollar which is the cause of the trade deficit.

The piece was somewhat misleading when it told readers:

"Last year, U.S. exports totaled $2.1 trillion, a 14 percent rise from 2010. That activity accounted for many millions of jobs and about 14 percent of the nation’s economic output."

Exports do not necessarily lead to jobs. For example, if GM moves a car assembly plant from Ohio to Mexico, we are not getting more jobs because part that used to go to Ohio are now exported to Mexico for assembly there. While exports do create jobs, many exports are intermediate goods like the car parts in this story and do not result in additional jobs in the United States.

 

Comments (5)Add Comment
Equivalence
written by Galludor, October 12, 2012 11:15
If the WP believes that exports mean more jobs then do they think that imports mean fewer jobs.
is the dollar overvalued?
written by Brian Dell, October 12, 2012 6:50
I don't think it should just be claimed that there is an "over-valuation" without a supporting argument. It should be easy to show that in Norway or Switzerland or Japan the currency is overvalued. But in China a claim that the national currency is overvalued should surely be considered skeptically. This doesn't mean that even in China it shouldn't be claimed that the currency should be lower yet, the point is rather that "over-valued" without qualification implies over-valued from both an internal and external perspective.
...
written by urban legend, October 13, 2012 12:57
I wish Dean would explain how we are going to squeeze more devaluation out of the dollar when (1) it already has declined significantly since 2002 (with little apparent benefit in the trade balance) and (2) our relative position depends on other countries acceding to our actions without countering measures. What is the practical pathway to a positive result that is available?
...
written by urban legend, October 13, 2012 1:55
It's a day later. Alas.
...
written by kharris, October 15, 2012 12:32
"In fact, in order to get the deficit down to a more sustainable level we will almost certainly need both higher exports and lower imports."

Mathematically, this is certainly not true. The deficit declines if the dollar value of exports rises faster than the dollar value of imports. There is a fairly large range of possible range of import and export volumes over which that could happen. In September of last year, for instance, both imports and exports rose, but the deficit fell because imports rose more slowly than exports.

You may have meant to write something that's true, but what you wrote is simply wrong.

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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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