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The US Department of Commerce has reported that the country’s trade deficit improved in December to $38.5 billion. That is down from $48.6 billion in November 2012 and from $51.7 billion in December 2011.
The report revealed a somewhat unexpected 2.1% increase in US exports and a 2.7% decrease in imports during the month, which added more that $6.0 billion to the GDP during the fourth quarter.
It’s easy for economists to get excited when unexpectedly good results are reported. This is especially true when your economy is dragging itself through the mire of seemingly endless financial doldrums along the edge of a fiscal cliff. But, getting back to the basics, solely to regain perspective, one month does not establish a trend. This is particularly important for the US to keep in mind.
No country wants to operate with a trade deficit, but we are not living in a fantasy. Someone has to have a trade deficit. But the US has a deficit situation with 13 out of its 15 major trading countries. Its deficit with China alone was $24.5 billion in December and a whopping $315.1 billion for the entire year. This is particularly dangerous for the US as trade with China comprises 64% of the entire deficit.
It would be unreasonable to expect that the deficit with China will change until the Obama administration removes the competitive advantages that permit the Chinese to enjoy and until the US dollar gains strength. Then there is the matter of standing up to currency manipulation and subsidies from the Chinese. At some point the US has got to take action.
Analysts are particularly noting the balance of petroleum imports and exports. US oil exports for December rose to $186.4 billion, a record high. At the same time US imports of petroleum products dropped to $224.9 billion. That the lowest that it has been in six years. There is still, nonetheless, a deficit. The American economy is certainly not benefiting from a deficit. In fact, just reducing the trade deficit, in and of itself, could turn the US economy entirely around.
So why is the administration not attacking the deficit as a high priority? It may simply be that fact that the deficit works in the favor of many US-based multinational companies. We’re talking about the really, really big guys. You know, the ones with the mega-bucks and lobbyists. The big players are concerned about their own profitability, not the US government budget. US trade agreements were drafted and signed with the concept of benefiting the already wealthy and influential companies. The deficit that the US has now is a result from which the government has to extricate itself.
If the month of January continues to have the same results as December, then we can begin to start thinking about planning a celebration. For right now, let’s just call it a step in the right direction.
