Trade Points to Structural Shift in the Economy

Foreign trade, once a hot topic, gets little media attention these days.  It deserves more.  It suggests that the country’s long-held technological edge may have dulled and that robotics likely is changing the nature of the economy.

The balance of this country’s trade with the rest of the world has made a dramatic improvement this year.  In the national income and product accounts, from which the Commerce Department tracks the gross domestic product (GDP), a long period of trade deterioration seems to have reversed suddenly.  Back in 2015 and 2016, the deficit of exports relative to imports widened appreciably, by more than 20 percent, in fact, from a $524.1 billion shortfall at the start of 2015 to a $631.1 billion shortfall at the end of 2016.  The improvement in just the first half of 2017 has reversed this deterioration by some 15 percent, narrowing the shortfall to $614.9 billion.  Particularly goods exports, which had shown the greatest weakness throughout 2015 and 2016, have put in a remarkable recovery, expanding in real terms at nearly a 7.0 percent annual rate during the first six months of 2017.  Imports, which had grown throughout 2015 and 2016 at about a 3.0 percent rate in real terms, continued roughly at about that same pace during the first half.

The previous trade deterioration, if not the recent improvement, largely reflects changes in the foreign exchange value of the dollar.  In 2014, in large part because of problems in Europe, the dollar’s value had soared.  It rose almost 25 percent against the euro from just under $1.40 to the euro to about $1.05.  Against the world’s currencies, weighted by the distribution of U.S. trade, the dollar jumped during that time by about 20 percent.  Since the currency move made U.S. goods and services more expensive to the rest of the world and foreign goods and services cheaper to Americans, it is not surprising that this country’s export growth stalled in 2015 and 2016 while imports increased at an accelerated pace.  That easily explains the earlier deterioration in the trade balance.  It says little about this year’s improvement, however.  To be sure, the dollar this year has dropped in value about 11 percent against the euro and about 7.5 percent against the combined currencies of the rest of the world.  That move may have helped exports and held back imports marginally, but it cannot explain the extent of the shift.  Currency moves usually take longer than this to have their impact.

More significant to this year’s improvement is U.S. energy production.  Domestically produced oil and gas has gained ground for quite some time, but more recently the momentum has increased markedly.  To be sure, imports of petroleum products have continued to grow, but domestic production has substituted increasingly.  Last year, for instance, petroleum product imports grew by a bit over 15 percent, while they slowed during the first half of 2017 to merely a 5.4 percent annualized rate.  Meanwhile, exports of domestically produced petroleum products have soared.  They were growing fast last year, up some 30 percent.  But so far this year, the growth pace has accelerated to an annualized rate of almost 50 percent.

If the trade account shows how America is making an ever-bigger mark as a global energy producer, it has also begun to reflect what looks like important structural changes.  The admittedly tentative detail from the Commerce Department seems to suggest that alterations are occurring on two fronts, with technological innovation on one side and more conventional industry on the other.

The technology matter appears in the detail of figures on services.  The leader on services exports and imports remains financial services.  Both continued to grow more rapidly than any other category, with exports in the area up 11.2 percent and imports up slightly faster at 12.5 percent.  This difference means little, as these figures frequently gain and lose on each other.  The next twelve months may see the relative growth rates reverse.  What says much more is how exports of telecommunications and computer services have grown only 4.1 percent during the past twelve months, while imports have risen 6.4 percent.  Speaking even louder to change, charges by Americans for intellectual property used abroad have actually declined 2.4 percent, while charges for foreign intellectual property used here have increased an impressive 14.1 percent.  If this does not verify the often-voiced fear that the United States is losing its relative technological edge, it certainly does not contradict it.

The detail on goods imports and exports offer a different hint about the influence of robotics.  The leading areas of export growth during the last twelve months are respectively industrial supplies and automotive as well as other transportation vehicles.  The one grew by an astounding 15.2 percent and the other by a lower but still impressive 10 percent.  Imports in these areas have trailed, growing respectively 8.0 percent and 5.5 percent.  At the same time, consumer goods, where this country has lost out to the world for a long time, have also shown a telling change.  During the last twelve months, exports in this area have grown, admittedly a slow 2.1 percent, but it is remarkable that they have grown much at all.  More telling still, imports of consumer goods have actually dropped 1.9 percent.  Aside from pointing to statistical anomalies that frequently distort data, the only way to explain these differences is with robotics.  After all, the United States remains a relatively high-wage economy.  That is why it has lost out in these areas for so long.  Robotics, however, has already shown how domestic manufacturing can compete, even in low value-added consumer goods.  More profound change along these lines is likely on tap in the future.

As already indicated, these signs are tentative.  It is still early days in the tracking of such changes.  If, however, these early signs are valid, then it is reasonable to expect this country to: (1) become a still more important energy producer, (2) to gather a greater edge in manufacturing through robotics, and (3) have less of an obvious technological edge than it has enjoyed for decades.  The implication for the nation’s training, education, and policy are powerful, as are the political consequences.



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