Re-posted with permission from the author.
Trade deficits resume upward climb
The US trade statistics for April were just reported yesterday. The US trade deficits, overall, went up for the second month in a row, despite a continuing decline in both imports and exports.
The largest component of our trade deficits continues to be our trade deficit with China. As shown in the graph below, that trade deficit in goods (the April stats for China don’t include services) also climbed for the second month in a row:
Bloomberg.com reports that economists are now predicting growing trade deficits as President Obama’s recovery plan causes imports to start to grow while US exports continue to shrink. Here is how Bloomberg put it:
Imports may be first to rebound later this year as the U.S. economy begins to expand, while exports languish until a recovery takes hold among trading partners from Japan to Germany, widening the deficit further….
The size of our trade deficit is the size of the leak of demand from the American economy. The Obama administration is trying to pump up the American economy with its recovery plan, but the faster they pump, the faster the trade deficits grow. The administration is trying to blow up a tire without patching its leak. The result is predictable.