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Bridge Building
Construction of a mass transit train line in progress with heavy infrastructure. This photo shows the progress in joining the various blocks/modules of the line with heavy equipment.
Leaving aside the nasty politics of late, let’s just say that the U.S. government — in all its forms — should focus on important things that have broad support, such as improving the country’s infrastructure.
That’s not to say that other things dominating the headlines aren’t important. The first amendment is important. Fake news, however its defined, is an important issue. International relations with foreign powers and the security of borders are also important. So is international trade.
But resolving those other issues — including trade — isn’t going to have a huge impact on the U.S. economy.
According to figures from the World Bank, the U.S. isn’t nearly as dependent on trade as other industrialized nations. That’s true of both imports and exports.
For example, in 2015, exports accounted for 12.6 percent of U.S. gross domestic product. That compared with 46.8 percent for Germany, 82.9 percent for Belgium, and 42.9 for the European Union as a whole. North of the border, Canada relied on exports for 31.5 percent of its GDP in 2015. About 78 percent of Canada’s exports, by the way, are to the U.S. Mexico, meanwhile, derives 35.4 percent of its GDP from exports — a little higher than Canada does but less than the EU.
Even when it comes to imports, the U.S. isn’t as reliant on trade as most other countries. Imports accounted for 15.4 percent of U.S. GDP in 2015, just over half the global average of 28.8 percent, and less than half of Canada’s figure of 33.8 percent, Mexico’s 37.5 percent, and Germany’s 39.2 percent.
This means that about 72 percent of U.S. GDP derives from the country’s own domestic production and consumption. That’s possible in no small part to the large U.S. population — nearly 325 million — and Americans’ still high average incomes relative to most of the world. The U.S. could cut off trade entirely and still have the world’s largest economy. (In 2015, the U.S. had GDP of around $18 trillion compared with $11 trillion for second-place China).
The trend over the last few decades, however, has for trade to become an increasing proportion of GDP, not only for the U.S. but for the world. Back in 1960, imports accounted for only 4.2 percent of U.S. GDP and 12.2 percent of world GDP. Those trend lines peaked in 2008, just before the global financial crisis — at 17.4 percent for the U.S. and 30.3 percent for the world. Then they dipped in 2009 — 13.8 percent for the U.S., 26 percent for the world — before rising in 2011 — to 17.3 in the U.S. and 30.1 percent for the world. Since 2011, those rates have slowly tapered off to where they were in 2015, the last year of figures available on the World Bank data website.
The trends for exports have followed a similar undulating line, although not as steep for the U.S. as for the world. But exports made up only 5 percent of U.S. GDP in 1960 compared with 13.7 percent in 2014, and 12.6 percent in 2015. Meanwhile, imports made up just 4.2 percent of U.S. GDP in 1960.
Another way to look at it, though, is that the relative importance of trade to the U.S. economy has tripled since 1960 — from 9.2 percent of GDP to 28 percent today. That change is even greater when imports, which have nearly quadrupled as a share of GDP, are looked at in isolation. And the difference between imports and exports has widened into a trade deficit that in 2015 was $500 billion. It’s a scary looking number, although most economists don’t appear too alarmed by it.
One view holds that the U.S. can run a systemic trade deficit simply because the U.S. dollar is a de facto world currency involved in nearly all international trades. The deficit is also offset by foreigners investing in the U.S., including in U.S. factories, as Dan Pearson, a senior fellow at the Cato Institute, noted in a recent essay posted on thehill.com. Also, U.S. manufacturing inputs account for half of all imports.
While Pearson agreed with the consensus among economists that the trade deficit isn’t a problem, he nevertheless proposed addressing it by reforming the tax code and balancing the federal budget.
Well, those are two things that the president and the Republican-controlled Congress have vowed to do. How they’ll do both while boosting military spending and ramping up infrastructure spending — as the president has promised — is going to be challenging enough. But they ought to focus their attention on those sticky problems rather than erecting barriers to trade that at best would do nothing to boost the U.S economy.
Building new roads, airports, and water treatment plants would provide a boost, though. And most importantly, the work can only be done on U.S. soil.
