Houston deserves more credit than Washington for improved trade deficit
While Washington wrestles with the nation’s burgeoning budget deficits, some good news has emerged on the other deficit front: The nation’s bloated trade deficit appears to be turning the corner, with at least one prominent economist predicting it will disappear altogether within a decade.The primary driver for all theses positive trends is the shale oil and gas revolution that was done without help from Washington. We are already seeing manufacturing of plastics coming back to the US where the natural gas feed stock cost a fraction of what it does in Asia. The increased oil and gas production also means fewer imports. It would be happening much faster if Obama and other Democrats would get out of the way of domestic production on federal controlled sites.
A recent wave of “re-shoring” of overseas manufacturing plants by U.S. chemical, auto and other companies signals the revival of U.S. competitiveness in many industries vis-a-vis Europe, Japan, China and other major trade partners. The trend got a big push recently from a dramatic drop in American natural gas prices, making the U.S. a highly desirable location for manufacturers relying on gas for energy and as a component in plastics, chemicals and other essential materials.
Rising U.S. competitiveness has stoked a major export revival since 2009, helping pull the economy out of recession. Many analysts have been surprised by how well exports have held up this year despite the slide back into recession of the largest U.S. export market — the 17-nation eurozone — and a major slowdown in the nation’s fastest growing market — China.
The export revival owes to a constellation of U.S. trends that have been building for years, including a pronounced weakening of the dollar against other major currencies, high productivity growth and subdued wage increases, and rising fuel and transport costs that make it more expensive for manufacturers overseas to deliver goods to customers in the U.S. American farmers also are helping the balance of trade by becoming beneficiaries for rising living standards in China and other emerging countries, driving farm prices to near-record levels.
On the import side, there has been a trend toward saving more and spending less among U.S. consumers and a dramatic reversal of U.S. energy consumption and production trends since 2005 that has put a lid on American oil imports and promises to turn the U.S. into a net energy exporter in coming decades. America’s gigantic oil deficit has been second only to the gargantuan trade deficit with China as a major driver of chronic U.S. trade gaps that surged to more than $800 billion at their peak in 2006.