The editors of the Wall Street Journal have lurched uncontrollably into the same observation I made a few days ago. We import more when the economy is growing:
The trade deficit grew 12% last year to $621 billion as imports rose $218 billion and exports climbed $149 billion. Excluding services, the gap increased to $891 billion.
This is not bad economic news. Imports grew faster than exports as the U.S. economy accelerated and much of the world slowed. The dollar grew stronger as capital flowed into the U.S., and the trade deficit grew to offset the larger capital inflows as it must by definition under the national income accounts.
Imports of industrial supplies rose $68.4 billion and capital goods increased $52.7 billion, which helped fuel a pickup in commercial construction and manufacturing. Fixed investment in structures and equipment climbed 5% and 7.5%, respectively, last year as businesses took advantage of lower corporate tax rates and 100% capital expensing.
Consumer goods imports also increased $46 billion, half of which came from pharmaceutical products. This isn’t surprising since the consumer spending share of GDP ticked up 2.6% last year amid rising incomes and falling unemployment. Most Americans also paid less in taxes, which enabled them to spend more on foreign household goods ($3.4 billion), clothing ($2.4 billion), cell phones ($2 billion) and toys ($2 billion). Note: Higher sales of iPhones assembled in China will benefit U.S. employees and shareholders of Apple , which is investing $1 billion in a new Austin, Texas campus.
Note too that the trade deficit expanded in 2018 even as the U.S. unemployment rate fell. This gives the lie to the common political claim that a higher trade deficit means lost American jobs. Capital investment matters more to job creation than trade flows do.
My concerns are more about the nature of the imports than their increase. I don’t mind when we import more raw materials. I do mind when we’re importing manufactured goods and consumer goods while people remain underemployed in the United States. My concerns are not assuaged by growth in the number of minimum wage jobs.
