Import and export growth and an expanding trade deficit do not need a strong dollar.
Import and export growth and an expanding trade deficit do not need a strong dollar.
We have had some discussions about dollar weakness and questions for those of us who expected the federal deficit to lead to a larger current account deficit through a strong dollar.
I’ve looked at the data in a different way and now wonder if we really need a change in the dollar to achieve a larger current account deficit. If you look at real imports and exports you see that real imports are now 155% of real exports and the basic trend is for imports to grow much faster than exports. Since 2013, real import growth has averaged some 3.4% annually while real exports only grew at about a 1.5% annual rate. If you project these trends out it implies that the real trade deficit would expand about 6% annually, or about a half a percentage point per month.
Interestingly, over the past year or so non-petroleum import prices have grown some 1% to 2% annually, or about the same rate as domestic prices. So there has been no significant changes in import prices relative to domestic prices.
So at least from this perspective I would expect imports market penetration to continue expanding. After all, in the overall trade balance, steel and aluminum tariffs — especially with major exceptions, like Canada — are not large enough to make much difference.
“Since 2013, real import growth has averaged some 3.4% annually while real exports only grew at about a 1.5% annual rate.”
Most models include both relative price effects and income effects. The very modest growth in exports can be attributed to weak aggregate demand growth for our trading partners. US aggregate demand growth has not been exactly vigorous but it has been better than some of our trading partners.
“steel and aluminum tariffs — especially with major exceptions, like Canada — are not large enough to make much difference”
Menzie Chinn and the Econobrowser crew are noting how US soybean exports will be a victim of the trade wars.
Since we are measuring export and import growth since 2013, we should note that the dollar is now stronger than it was 5 years ago:
https://fred.stlouisfed.org/series/TWEXB