The fourth straight rise in exports was an encouraging sign that the global economy has started to recover from a severe recession that began in the United States and quickly spread to other parts of the world. But many economists expect the deficit to rise in coming months on the back of a rebounding U.S. economy, which will start importing more foreign products.

via Trade deficit narrows to $30.7B: Rutland Herald Online.

I like economics, but I am only a novice economist.  Either way, here is my take on this bit of news:

Don’t confuse the trade deficit with the budget deficit.  The former being relatively benign and the latter being malignant.  Trade deficits are a sign of a good economy.

Just because we use the word deficit to describe levels of trade with other countries does not mean that it is a bad thing to be importing more than we export.  In fact, it is a good thing.  Our trade deficit with other nations signifies that our market is strong and desirable for the buying and selling of products.  Now, that is at least in some part because we have a reliable environment of lawfulness that ensures security for the products and the retailers.  However, it traditionally signifies that the U.S. dollar is a prize possession.

This article says that the dip in the trade deficit is a sign that the global economy is recovering and that it will likely go back up when the U.S. economy begins its recovery.  When the U.S. economy recovers, then yes, the deficit should go higher.  I would caution, however, against believing that the global economy is improving.  The reason for a drop in imports is probably a result of a weakened confidence in the U.S. markets and more specifically the value of the U.S. dollar.

The weakened confidence in our market and our dollar is likely a leading indicator of the downward direction of our economy.  Despite what Barack Obama, Joe Biden, and Robert Gibbs tell us, the economy will continue to falter and sputter and even get worse until the shackles come off of the engines that drive the U.S. markets: capital, ingenuity, and risk (with a little hard work thrown in for good measure).

With the government controlling what banks can and can’t do, we have serious problem creating the capital necessary for investment and growth.  With the government prepared to raise taxes on capital gains (among many other taxes) ingenuity is stifled because people have fewer avenues for creating wealth.  And with the threat of an ever-increasing regulatory environment, risk has become all but impossible to take as a means to putting ingenuity into action.

So, not that many of you care what the trade deficit is, but don’t be fooled into thinking that it is a good thing for the immediate future of our own economy.

Recommended reading: Basic Economics by Thomas Sowell

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