TRADE-DEFICIT REFLECTS AMERICAN PROSPERITY
May 27, 2004
One of the enduring myths of economics is that trade deficits are an indicator of poor economic performance and should be avoided. Economist and syndicated columnist Larry Kudlow says strong American imports actually show economic strength and, despite the figures, few have noticed the spectacular performance of U.S. exports, a key recovery indicator.
According to Kudlow:
- The United States has run a sizable trade gap for nearly 25 years, even while the economy has prospered: low unemployment, low interest rates and low inflation.
- The $46 billion trade gap for March reflects imports of industrial supplies and capital goods fueling business expansion and job creation at home, which have increased by 10.5 percent and 16.5 percent over the last year.
- Even still, for the 12 months ending in March, total exports of goods and services increased by 14.6 percent, forged in rapid technology gains and record productivity.
- When measured on a 12-month basis, total exports are growing slightly faster (11.8 percent) than total imports (11.3 percent).
Kudlow says balancing the U.S. trade deficit is a steady flow of foreign capital into America's high-return economy. Last year, net private capital inflows were $370 billion as compared to a current account deficit for goods and services of $490 billion. Kudlow argues the difference is a statistical discrepancy, likely government undercounting of small-business exports.
Source: Larry Kudlow, "Trade-Deficit Trash Talk," Townhall.com, May 16, 2004.
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