Wednesday, April 30, 2008

USA GDP Grows 14% by Balancing Trade Deficit

My blog-article title today is a forward looking best-case scenario outcome of what is possible if the United States would simply balance its current trade deficit. Stick with me for a minute as I run the (very basic) math that extrapolates a result from today's headline on GDP growth for the first quarter of 2008.

I was just reading on how, even though it feels much like the United States is in a recession here in early 2008, that the U.S. Economy Expanded at 0.6% Pace in First Quarter of 2008 (according to the government). From this article, I extracted the following statistic:

Benefit From Trade: "An improvement in trade continued to contribute to economic growth. The trade deficit narrowed to an annual pace of $495.9 billion last quarter from $503.2 billion. The smaller gap added 0.2 percent to growth, after a 1 percent boost the prior quarter."

So, let's do some quick math. If a "small" $7.3Billion narrowing of the trade balance (between exports and imports) in the USA's favor can move the GDP positive by 0.2%, then that implies that every $36.5Billion lower the trade deficit moves, we would realize a 1% boost to the United States GDP (at least, using current 2008 numbers).

Continuing with this train of thought: we currently have a trade deficit of nearly 1/2 a TRILLION dollars per year! So, divide the $36.5 Billion into that Half-Trillion number, and you get 13.6% (which I rounded to 14%). So, the United States can gain 14% GDP growth just by balancing its trade with the rest of the world, all other things being equal. That's astounding! Heck, even China's insanely fast growing economy barely approaches a 14% growth rate.

Now, another way to look at this is that our trade deficit is costing us an incredible sum of money and a fantastic amount of growth! We really need to reign in this imbalance if we are to ever have hopes that the American Dream of long-term opportunity for prosperity (for the average American) is always available. Sure, a FEW people are making out rather well during the current mass-export of cash to foreigners, but wouldn't it be nice if there were a few more opportunities for every US citizen to partake in this global economy in a more positive and constructive way (vs. just being a consumer of foreign products)?

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