With so much talk about how a narrowing trade deficit could hurt the U.S. economy, it bears reminding folks that we’ve yet to see any evidence that the U.S. economy is making headway in narrowing it’s trade gap. It’s also helpful to note that over the past thirty years (chart), the only times trade deficits shrank were during U.S. recessions.
This makes sense, since the U.S. consumer is still the main driver of the world’s economy. When the U.S. puts its wallet away, there’s a natural flood of capital that remains domestically consumed, which further supports recovery during economic down-drafts.
In the latest trade data release, we see that our most recent trade deficit figures shows the U.S. hovering around levels not seen since 2004 through 2008 (chart). This is certainly surprising for those pundits that have been singing the doomsday song that a global trade war is underway.
Moreover, regardless of narrowing or expanding deficits, U.S. GDP has continued to grow (chart). A simple data set that illustrates how much U.S. economic growth and sustainability is based upon the U.S. retail and business consumption. Said another way, U.S. economic stability is not dependent on the cyclical trade surpluses or deficits that result from trade policy negotiations.
