The International Trade Gap is also known as the Balance of Trade. It is one way to determine how healthy an economy is. The Balance of Trade is a summary of the monetary value of a country's exports and imports. Exports are goods and services a country sells. Imports are goods and services a country buys. When a country exports (buys) more than it imports (sells), the balance of trade is positive and is called a trade surplus. If a country imports (sells) more than it exports (buys), the balance of trade is negative and is called a trade deficit. The United States has been facing a trade deficit (buying more than we sell) since 1976. Interestingly, if you look at goods and services separately, the balance of trade for services has always been positive.
International trade is a necessary evil. It allows a business or country to expand; like most expansions, smaller, less competitive agents are usually hurt or allowed to fail for the benefit of the majority (In a future post, we will look at the effects of globalization on the Jamaican economy and the rise of Wal-Mart). Although the United States has many natural resources, for example, it cannot provide it's citizens with everything they want or need. For this reason the U.S. engages in international trade with other countries. The U.S. Trade Gap is the balance of trade between America and the rest of the world.
During the month of April, the deficit worsened by about a billion dollars from March. Deficits, per se, aren't necessarily a bad thing. It's really about when they occur and what effects other economic events have on them. In a recession, highly developed countries like the U.S. may want to export more, thus selling more goods to foreigners than they purchase from them. In theory, this would create jobs (to manufacture, distribute, market and transport the good) and demand for said good. This would help an economy fight the effects of a recession. In prosperous times, a country may be in a position to build capital or invest in machinery for future growth and will choose to import (buy) more goods and services.
Well, right now the United States is in the middle of recession and we're on the wrong side of the import/export fence. The widening deficit means that at a time when money is already tight from individuals all the way up to our national government, we are still outspending what little bit of revenue we're making. What are we spending our money on? Wait for it....Oil.
American oil imports are up and instead of gassing up our cars, in reality we are fueling the deficit! America has the most powerful economy in the world, measured by a Gross Domestic Product (GDP, another measure of economic health) figure of $48,000 per person, for roughly 300 million people. Wow! Additionally, U.S. firms have more flexibility and independence in their business decisions than their Western European and Japanese counterparts. But oil is the proverbial monkey on our back. Higher gasoline prices a year ago ate into our pockets and inevitably, into our trade budget. Imported oil accounts for about two-thirds of all U.S. consumption so it's a big part of national GDP (Remember, GDP is the economic determinant of how big and bad a country we are). According to the CIA World Factbook, America produces 9 millions barrels of oil and consumes 21 million barrels each day. We import 14 million barrels and and export 2 million. Something has got to give.
Oil is a natural source of energy, but not the only source. President Obama has issued a call for Americans to find other ways of getting the energy they demand - without going into debt or depending on someone else to negotiate the supply. On June 1st of this year, U.S. Department of Energy Steven Chu announced a $256 million investment from the President's American Recovery and Reinvestment Act. The initiative will support energy efficient improvement in industry. The funding is set to reduce energy consumption - especially in manufacturing and IT sectors - create jobs, and help grow the economy. We'll have to hold our government accountable for weening us off of our addiction and developing environmentally-friendly, long-term solutions.
Here's an interesting and ironic video clip of a Barack Obama painting done entirely in motor oil. The artist is David Macaluso.
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