More On Total Trade vs. Net Exports
I had a post last week about how trade gets reported: a) we treat exports as a positive contribution to the U.S. economy and imports as a negative contribution, and b) we never report the total amount of trade, but instead report the net difference between exports and imports, leading to analysis such as this from Vanguard:
"The economy continued to show signs of weakness in June as the U.S. trade deficit widened at an unprecedented pace."
Alternatively, it could be reported that imports in June exceeded $200 billion for the first time in 20 months, and import activity has improved in 8 out of the last 10 months (see top chart above). Further, if you look at the composition of imports in the bottom chart, it seems strange to consider the increases in imports to be a "sign of weakness," because they contributed to a widening of the trade deficit in June.
More than half of U.S. imports are inputs (industrial supplies, raw materials and capital goods) that were purchased by U.S. firms and will become part of some production process in the U.S. In June, more than $110 billion was spent by American companies on foreign inputs, which seems to indicate a sign of strength and expansion, not weakness and contraction, no? Likewise, if American consumers could afford to spend 29.2% more on foreign cars, food and clothing this June than last June, how is that a sign of "economic weakness."
As I mentioned before, I think this obsession with the trade deficit and "net exports" can be traced to the fact that the calculation of Gross Domestic Product treats exports as positive and imports as negative, but maybe that's not the only way to measure economic performance. Fisher Investments summarized it this way: "Focusing on net exports is simply wonky. We benefit in myriad ways from importing goods others make more cheaply and efficiently. Plus, increased imports is a sign of economic vibrance!"