Trade (exports) represents only 14% of US GDP, so why is it considered so important?

[Julie4]

[nightdrot]

First, I have been meaning to get to this question and I am sorry I have been away. We just got back from a family vacation. We have company coming later today for what is, in the States, a holiday weekend. (Labor Day.) Then I have a business meeting that I have to get ready for that will be this Wednesday and then a friend's wedding the following weekend. Plus we have to get a little repair work done of the family car.

So, after this coming weekend (September 9 and 10) I should be back on this site on a regular basis. In the meantime, as I say, sorry I have been away, but as you can tell, it has been hectic.

Oh, also, I saw your kind comment to @RavVid, but just to be clear, I work in politics but I have never run for elective office. So I don't quite count as a politician, just a staffer.

As far as the question itself, and I am sorry that I have to answer in brief, as RavVid suggested, it is partly simply a matter of the numbers. The trade deficit is seen, not entirely without reason, as money that was lost to a competitor.

To be sure, that is an oversimplification but, especially in periods of economic distress, it is seen as a net negative and it can also be exploited for political purposes. I. e, the party out of office can accuse the part in office of not sufficiently supporting the economy.

However, it is actually more than that. Part of the issue also has to do with what the trade deficit represents in terms of the various sectors of the economy.

For example, as the USA has transitioned from a manufacturing based economy to a service-tech economy it can be seen, on the whole, as doing better economically. After all, there is more money to be made in writing computer programs than in simply manufacturing microchips.

So over time the manufacture of microchips has moved out of the USA to its' trade competitors - especially China, for example. Yet the USA still needs microchips and is therefore forced to import them. This nets out to the trade deficit and while the number is small, it represents a vital segment of the economy and, indeed, has national security implications.

Also, on top of this, while the overall economy may be producing jobs, the trade deficit to some extent represents job losses. Those who work in sectors of the American economy that have not been trade competitive lose their jobs. While overall there may still be net job gains, those who lost their jobs are not likely to take much comfort in that fact.

In even the best economy there are winners and losers and the trade deficit represents, in effect, the losers. Suffice to add, those losers can - and still do - vote and this makes the trade deficit a critical issue.

There are other factors, but these are the key issues related to the political relevance of the trade deficit. Even though a relatively small percentage of the American economy it still has economic, social and national security implications and that makes it a politically important issue.

Hope that helps.

[Julie4]

Oh yes, I didn't want to bother you, but I still appreciate that you took the time to reply.

I have the impression, at least for the USA, that the importance of trade is partly exaggerated. I mean, even if the US stopped exporting tomorrow, it would still remain quite comfortably the world's leading economic power, thanks to its domestic market.

One person replied as follows

"Trade is important for the United States because it enables it to benefit from the international division of labor, to access larger and more diversified markets, to boost its competitiveness and innovation, and to strengthen its political and cultural influence in the world. Trade may only account for 14% of US GDP in 2021, but it has a significant impact on the country's growth, employment, standard of living and national security.

"Trade contributes to U. S. GDP growth by increasing demand for U. S. products and services, reducing production and consumption costs, promoting investment and improving productivity. According to a study by the Bureau of Economic Analysis (BEA), trade added an average of 1.1 percentage points to annual U. S. real GDP growth between 1992 and 2017. Trade has also enabled the U. S. to maintain its technological lead in strategic sectors such as aeronautics, information technology, biotechnology and renewable energies.

Trade creates jobs in the United States by supporting exporting sectors, which are generally more dynamic, competitive and remunerative than non-exporting sectors. According to the Department of Commerce, exports supported 10.7 million jobs in the United States in 2019, or 7% of total employment. Trade also fosters mobility and diversification of the workforce.

American workers, who can take advantage of the opportunities offered by foreign markets

Cont

[Julie4]

L' instrument of its diplomacy and global leadership, negotiating trade agreements that reflect its interests and values. In conclusion, trade is an essential factor in the economic power of the United States, even if it represents only a relatively small share of its GDP. Trade offers the United States many and varied benefits, which go far beyond its impact on GDP and the costs and risks it entails. End

When you have time, let me know if this answer is relevant.

[nightdrot]

Hi - VERY briefly, yes, he is right.

By the way, interesting to note that after WWII the USA deliberately ran a trade deficit to aid the recovery of France, the UK and other Western powers. We opened access to our markets and thereby gave scope to economic recovery and growth in Europe.

Anyhow, sorry again to be so brief. My guests literally just pulled in the front drive so I've got to run.

[Julie4]

Send the Hello to your family and take care of you. Thank you again for your time.

[Soteris]

I mean for starters, exports are when you sell products to other countries and get money in return as opposed to imports when money is leaving your country. Secondly, a 3 trillion hole in your economy is not particularly nice no matter how big your GDP is and the export/import is particularly vulnerable since you do not have full control of it so you can get screwed over by no fault of your own.

Exports and imports are also part of diplomacy and power projection. The European Union for example is basically just a free trade agreement with some extra stuff tacked on, the middle east is influencing the entire world by controlling the oil supply and China is trying to challenge USA through their economic power which is a combination of their imports and exports.

If you are a shitty country that no one really cares about then your import and exports are not as important but once you start talking about major nations and super powers then this is what makes or breaks their future. After all, a national superpower is mostly judged by its ability to project power and influence and not by the size of their economy or how big their country is. They often go hand in hand, but they dont have to.

It is also important to point out that your exports are not really telling the entire story. For example, Mc Donalds is not exporting hamburgers around the world but the fact that they can operate in different countries makes them a much more powerful company compared to if they were only limited to inside USA. If USA became isolationist and cut itself off from the rest of the world, including limiting US businesses from operating abroad then its not a stretch to say that it would be the end of USA as we know it.

I could go into further details, and perhaps I should, but I am too lazy. Point is that trade is not just about the money, even though that is also much appreciated but it also includes so much more which is hard to put a price tag on.

[RavVid]

Not an area that I am competent in but it is an interesting question. Obviously at level it is like our income and expenditure and a trade surplus is like spending less than your salary. Where my understanding fails is why it is considered China is too dependent on exports and would be better off with a higher proportion of GDP being domestic. I can see that forms a stable base whilst exports can variable and vulnerable but can't see what an ideal would be or if there is an ideal.

The products a country exports does sort of define a country and it's influence even though those products might be entirely made elsewhere. Apple iphones for example. Superior products = superior country and citizens of other countries will take those countries more seriously.

I just checked last night that Australia only does 85 million AUD trade with Russia. So should we care if Putin is pissed with us? Nope, don't give a damn.

I'll enjoy reading the answers.

[Julie4]

@nightdrot is the only one who can really answer this question. He's a politician so he must understand what I can't grasp.

[ManofHistory]

Sorry for the long reply.

The US exports does amount to between 14-15% of global trade, but that is also the third largest exporter in the world. Imagine if we shrink the global economy by 14%. That almost certainly would plunge the entire world into the largest and most devastating depression in history.

In addition, the US is one of, if not the, largest global food exporter, except fish lol.

The US is also the worlds top importer, amounting to around 13% of global imports.

The US drives trade, tourism, development, and military spending from civilians and government spending.

The US is very important globally, but so is every other country, like France.

[BoopBoopBeep]

It's important not just for the cash flow but the agreements and alliances formed because of them. Oh you have too many scarves? We'll buy them from you buddy!

China is the largest supplier of chopsticks. A U. S. company in Georgia still manufactures chopsticks and exports to China and Japan. Many military contracts that you see "U. S. transferring 30 planes to whomever" are through negotiated contracts that are "we'll let you buy these from the private company that makes them" not just giving you a gift of prepaid equipment. That can be a HUGE influx of foreign money into the economy, because what they paid eventually trickles through the company and into the economy (bonuses or buying power, but it's not just sitting in a box).

If nobody is buying our stuff, then it's only U. S. dollars that are buying EVERYTHING, and we'll have to print more to keep up with obligations, personal and private, which nobody wants.

[exitseven]

14% is a considerable amount but it should be much greater. There is a container ship larger that 3 football fields that leaves China practically awash with cheaply made goods from China and sails to the port of LA. This ship goes back practically empty. Until Trump was president I was the only one that saw anything wrong with this.

[BCA6010]

14% on a scale of trillions of dollars is a huge number.

A retail business will potentially go out of business if they lose 14% of their revenue.

[WhiteBoyChill]

Because we should be exporting more than we import so we don’t continuously run a trade deficit

[NathanDavis]

every trillion counts... no matter what

[motownplayer2000]

Ratio… lol