Net Exports of Goods and Services
Breaking down trade
In the previous two posts, we have looked at trade. We saw that the US has had a negative trade balance (aka a spooky trade deficit!!) since the 1970s and that the US hasn’t exploded yet because of it despite all of the dire warnings from anti-deficit people. We also saw that when trade is considered from either exports or imports as a whole, both sides of the equation have grown over time and are a major driver in the economy. Trade is obviously important. So, here is another way to look at trade:
I’ve made many mentions about the US as a consumer-driven economy and that the consumers have been “consuming” services as a growing portion of GDP over the last several decades. That is why we are a service-based economy.
If the US, the biggest country by GDP and big deal economically, is a service-based economy, then we are probably pretty good at services. Like, if the economy is driven by just doing stuff for each other and we have these super-consumers that consume a lot, then they probably have some degree of savvy or discretion when it comes to service consumption. The more you do something the better you get (ideally speaking). And, we see this play out with trade when we break total net exports into net exports of goods and net exports of services. When we do that we see that:
We run a services trade surplus with the rest of the world
We run a goods deficit with the rest of the world and it looks really similar to the chart for net exports as a whole
So, the takeaway here is, we don’t really make as much stuff in the US anymore because we like to import it instead and, also, that we are so darn good and plentiful with our services that our mighty consumers can’t even consume all of them so we run a trade surplus! This makes a lot of people uncomfortable.
We are bringing in physical goods from other countries. Tangible products. Stuff you can hold. It’s as real as it gets.
And, in return, we give other countries…services? It’s easy to feel uncomfortable. If you gave me a handcrafted physical tool that did something really important and I paid you back by writing a newsletter about trends in the economy…it might feel a little unequal.
It could be worse though. We could run a goods deficit AND a services deficit. Then, that situation deserves a long hard look in the mirror because you just wake up one day as a country and ask…are we good at anything? Remember though, even in that situation a bunch of smart economists will explain that the deficit is a good thing! Is it though? I don’t know - I am but a humble chart maker.
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