Thursday, October 11, 2007

$29 Billion

Yesterday, the Commerce Department released the trade deficit figures for August. Even though the number came in better than estimates at $57.6 billion, it is still a huge outflow that must be offset by capital account inflows. However, there are many positives to look at here. It could be much worse, given all negatives floating around. The most serious long-term negative is the increasing protectionist sentiment in Congress. They seem to be most insistent on pushing the US back to the economic glory days of the Jimmy Carter era, or worse by foisting upon us a Herbert Hoover-era, Smoot-Hawley-like, Depression-creating tariff. It shouldn't be surprising that Congress has an approval rating approaching the single digits. Maybe they should stick to censuring the current Turkish government for the ninety-year-old actions of the Ottoman Empire, but that is the subject of another post.

Which brings me to $29 billion. The figure represents the total value of petroleum products that the US imported in August. I'm no mathematics expert, but that works out to about $1 billion a day. That number also works out to almost exactly one-half of the trade deficit number. Given that the price of oil has moved higher at a fairly regular pace over the past few years, that deficit number has grown. None of that part of the deficit is with China; they make up a large part of the other half. The biggest single recipient, surprisingly or not, is Canada, which explains the 30-year high in the C$. The rest of it goes to the usual suspects in no particular order: Saudi Arabia; Mexico; Venezuela; etc. Every time the price of oil goes up, the deficit will get worse, despite all of the Chinese-bashing tariff that can be put in place. The weaker dollar contributes too (even though commodities are priced in dollars, as the dollar weakens, producers adjust their prices accordingly to make up for the reduced purchasing power), although it is far less significant and is probably more than offset by increasing exports.

It is this side, the energy side, of the trade deficit that is the real problem. It is the one that needs to be addressed, not the politically expedient goods side that gets all the attention. Of course there are problems with the goods deficit that need to be addressed, but the discussions need to be limited to the high value goods that can be profitably competitive with area of the world that have unlimited supply of cheap labor. Let them make the cheap stuff (And don't apologize to them when they are in error, call them out on it. This means you, Mattel). As stated in previous posts in this forum, $80 dollar a barrel oil opens up many opportunities for alternatives in the US that weren't feasible at $30/barrel. Conservation, cleaner coal, oil shale, solar, the list goes on and on. The US government should embrace this opportunity and lead the nation into the post-imported oil epoch.

2 comments:

Anonymous said...

The U.S. only changes in times of crises such as war or terrorism. I agree that $80.00 oil opens up alternative opportunities, but the U.S. is handcuffed by the political expediency of maintaining the status quo. Heck, the boys and girls in DC know that social security is broken AND they know how to fix it, but it is easier to put one's head in the sand.

With oil, they would rather keep their head in the sand than their eyes on the shale. If "big oil" started tearing up the landscape to obtain oil, the outcry would be deafening.

The U.S. is a collective paradox. We want cheap oil, but refuse to sar our landscape to get it. We want chap gasoline, but don't build any new refineries.

We want to help the world's poor, but don't make developing economies vibrant enough to potentially steel American jobs.

You know what? The U.S. deservs a President Hillary Clinton.

bondguy1824 said...

Absolutely correct. Have a good weekend

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