THE HYPE OVER TRADE DEFICITS HAS OBSCURED THE FACT THAT THE U.S. IS A PRODIGIOUS EXPORTER. AND WHAT'S WRONG WITH TRADE DEFICITS ANYWAY?
(Article originally published in Sept/Oct 2017 edition.)
Trade has been much in the news these days, particularly as the U.S. President has taken dead aim at those countries that would dare to run a trade surplus against the U.S. The enmity extends to friend and foe alike – China, Japan, Germany, Mexico, South Korea, you’re all in this together. How dare you profit at our expense! It’s unfair! It may be against the law, and it’s certainly un-American. So watch out! Sanctions are coming!
Really? Here’s what Bryan Riley, Senior Trade Policy Analyst for The Heritage Foundation, had to say about trade deficits in a recent Forbes editorial: “…the use of the word ‘deficit’ is misleading because it suggests Americans are running up a debt with other countries. But if your neighbor buys a $300,000 Ferrari, you don’t owe Italy a dime and neither does the United States. Nevertheless, the government calls this transaction a $300,000 increase in the trade deficit. That is extremely misleading to people who, understandably, think of a ‘deficit’ as a financial shortfall.”
Confused? So am I. So let’s step back a minute and take a closer look at this whole issue of trade deficits and what they really mean.
This year the U.S. has already achieved two historic firsts: It’s now exporting more than a million barrels a day of crude oil, and it’s become a net exporter of natural gas for the first time since 1958. The U.S. had already been exporting gas by pipeline to Mexico, but it also imported a lot of piped-in gas from Canada.
What tipped the scales was the start of LNG shipments from Cheniere’s Sabine Pass facility last year. Those exports are now escalating in volume and going to places like Poland and Lithuania where they pose a long-term threat to Russia’s energy monopoly in Europe. And there’s more coming as Cheniere starts up additional “trains” at its Sabine Pass and Corpus Christi, Texas facilities. America’s shale resources, both oil and gas, are upending the global energy equation and making the U.S. an energy giant once again.
All told, the U.S. exported nearly one and a half trillion dollars’ worth of goods and services in 2016, second only to China and well ahead of the rest of the world. The biggest categories include Capital Goods (cars and trucks, planes and tractors, machine tools and the like), Industrial Supplies (oil and gas and coal, chemicals and plastics), Food & Agriculture (soybeans, wheat, corn, meat and poultry, dairy and eggs), and Consumer Products (pharmaceuticals, cell phones, TVs, household appliances, furniture, jewelry, cosmetics, toys and sporting goods).
The three fastest growing product categories are energy exports (up 72 percent in seven years), cars and trucks (up 69 percent), and aircraft and spacecraft (up 62 percent). SpaceX, anyone?
TOP EXPORTERS (2016)
China $2.098 trillion
U.S. $1.471 trillion
Germany $1.283 trillion
Japan $641 billion
South Korea $509 billion
Source: CIA World Factbook
A big boost to U.S. exports was the opening last year of the Expanded Panama Canal. It increased container traffic to East Coast ports substantially and boosted exports of cars, trucks, lumber, chemicals and textiles. By allowing passage of the largest gas carriers, it also boosted exports of LPG and LNG and ethane and resins and all the building blocks that go into manufactured products – products that countries in the Far East, in particular, want.
The Canal also increased trade with countries closer to home – in the Caribbean and Central and South America – and especially countries like Chile and Peru on South America’s west coast.
The maritime benefits of all of this are obvious.
Ports and terminals in the U.S. have expanded as have warehouses and distribution centers and intermodal connectors. The inland tug-and-barge business has benefited from increased exports of agricultural products and chemicals on the Mississippi river system to the Gulf of Mexico and through the Canal. U.S.-flag product tankers are being built to transport surging energy production. And companies like Kirby Maritime (NYSE: KEX) and Cheniere Energy (NYSE: LNG) have become more valuable in the process.
Crude oil exports have boosted ports like Corpus Christi, now the largest exporter of U.S. crude as a result of exploding production in the Permian Basin. Some of that crude goes up the eastern seaboard in Jones Act tankers to refineries in Delaware and New Jersey, but most of it goes to Europe or through the Canal to countries in Asia. And guess who one of the biggest buyers of U.S. crude is? Yep, none other than China! According to a recent item in The National Interest, “Between January and May of this year alone, China accounted for over 20 percent of America’s global crude-oil sales ($1.6 billion in value), enough to temporarily displace Canada as the United States’ number one oil export destination.”
Refined products like diesel and gasoline and natural gas liquids like propane and butane are even bigger U.S. exports, totaling nearly four million barrels a day, all of which helps reduce our dependence on imported energy. Last year the U.S. imported roughly 10 million barrels of crude and crude products a day and exported roughly five million barrels, according to the Energy Information Administration, for a net deficit of five million barrels a day.
That deficit represented about 25 percent of daily U.S. energy consumption, the lowest level in more than forty years and a far cry from the early 1970s, when the U.S. relied on OPEC and others for more than half its daily energy needs.
Given a track record like this – and with the economy growing at a steady clip and exports expanding – shouldn’t the U.S. be boosting its exports instead of trying to restrict imports? Shouldn’t the Administration be doing everything in its power to promote exports through reduced red tape, increased financial and regulatory incentives, and agencies like the Ex-Im Bank, whose mission is to create and sustain jobs by financing sales of U.S. exports to international buyers?
Created by Executive Order in the depths of the Great Depression, the Ex-Im Bank has – unfortunately – fallen on hard times of late and been harshly criticized as a form of corporate welfare and the handmaid of giant multinationals like Boeing and GE. Its funding has been slashed, and it still doesn’t have a permanent Chairman.
But the Ex-Im Bank is really all about job creation – “Jobs, Jobs, Jobs,” as Trump likes to say – and the Bank’s charter specifies that not less than 20 percent of all its loans must go to small businesses. In an era when export credits are more important than ever and other countries, mainly China, are using them to great advantage, shouldn’t we be doing the same? So what are we waiting for? Let’s appoint a new Ex-Im Bank Chairman and get it properly funded.
THE DEFICIT BOGEYMAN
Despite its enviable record of exports, the U.S. is also the world’s biggest importer, and imports are growing faster than exports. As a result, it had a trade deficit of $740 billion last year, also the world’s biggest. But it’s in good company. The U.K. is in second place, and India – one of the fastest growing economies in the world – is third.
And what’s wrong with deficits anyway? U.S. consumers are buying more and benefiting from lower prices. They’re buying more because they have more money to spend as a result of U.S. economic growth. And most of the money that flows overseas comes back in the form of U.S. government securities. China, after all, is the largest foreign holder of U.S. debt (more than a trillion dollars) and helps fund our annual budget deficits.
Here are the countries with the biggest trade surpluses with the U.S. in 2016:
China $347 billion
Japan $69 billion
Mexico $66 billion
Germany $65 billion
South Korea $28 billion
China, Mexico and South Korea are already on the Administration’s “hit list,” but to what end? Why don’t we target Japan and Germany too? If trade agreements like NAFTA help create jobs and spur prosperity in Canada and Mexico, isn’t that a good thing? Won’t they buy more American products as a result?
The entire deficit with Mexico is made up of imported auto- mobiles, which travel from assembly plants in Mexico by rail to the U.S. and cost less than if assembled in the U.S. But most of the parts in those automobiles were actually made in the U.S., so it’s really a win-win situation and not, as some like to portray it, a zero-sum game where there’s a winner and a loser. Both the U.S. and Mexico benefit.
We’re not talking about unfair trade practices like “dumping,” of course. If deficits are the result of “dumping,” that’s one thing, and retaliation is in order. But dumping is not the issue. Fair trade, or what we hope is fair trade, is the issue, and that’s really the point of the Administration’s effort to renegotiate certain trade agreements like NAFTA and KORUS (Korea-U.S.), isn’t it? But what constitutes fair trade, and who decides?
Because of its economic muscle, the U.S. can easily weather huge trade deficits and actually profit from them. The $2+ trillion in goods we import every year create tens of thousands of jobs in the maritime, logistics and retail industries. They also create tens of thousands of jobs in the countries that produced them, and someday those consumers will be “Buying American” too, if they not already are (Buick sells more cars in China than in the U.S., for example). And your neighbor who bought that $300,000 Ferrari? Good for her! MarEx
The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.