An exercise in divination using the entrails of last week’s U.S. international trade report shows signs of a move with larger implications than just the gaping deficit that caught analysts wrong-footed: the possibility of a persistent burden on the American economy caused by Japanese and German imports, like in the 80s.
The U.S. trade deficit widened 16 percent in November to $48.7 billion, the Commerce Department said on Friday, above the $41.3 billion expected. The negative surprise prompted economists to cut hastily their U.S. gross domestic product estimates for the last quarter to a negligible rate. The stock market took a hit.
The disappointment was limited, however, as analysts attributed the bulky import bill behind the deficit increase to a resumption of merchandise flows into the U.S. after Hurricane Sandy paralyzed port activity in the East Coast the previous month. Some economists still on yuletide mode are, apparently, missing the big picture.
In the first 11 months of 2012 Japan’s trade surplus with the U.S. surged 24.7 percent over the same period of 2011 to $70.6 billion. Similarly, Germany’s gained 22.0 percent to $54.3 billion. China’s massive surplus stood at $290.6 billion, but its increase was much slower, at 6.7 percent. And OPEC’s net trade fell 18.9 percent to $95.5 billion.
GROWTH DIFFERENTIAL, OFFICIAL PROMISES AND … 1980’s FLASHBACK?
It is starting to look as if in the “New Normal” global scenario resulting from the Great Recession of 2008-09, the relative strength of the U.S. and its real exchange rate compared to Japan and Germany is causing a fast rise of those two nations’ surpluses in the world’s most powerful economy, while China’s and OPEC’s net commerce with the U.S. settles at a high level.
This is far from being the product of a storm or some port closure. In the cases of Japan and Germany, it is, in fact, the fruit of more than a decade of adaptation to the challenges of globalization. Both have worked hard to recover their clout as net exporters by deflating costs, enduring currency appreciation, outsourcing industries and protecting their home markets.
Washington’s worries have been, of course, China and OPEC. Things are changing there as well. Beijing keeps a huge trade imbalance with the U.S., scuffling at the WTO almost every day. Yet China has matured, getting more expensive for imports due to yuan appreciation and domestic inflation. OPEC’s surplus is still strong but the U.S. shale oil boom is finally cutting it.
So, what to expect from now on? It all depends on the degree to which officials deliver on their promises for 2013. U.S. policymakers say they will accelerate growth, the Japanese are determined to devalue the yen and the European Central Bank is more focused on jump-starting the eurozone than having a strong euro.
If this materializes and the growth gap between the U.S. on one side and Japan/Germany on the other continues, with the associated real dollar appreciation against the euro and yen, we will see more and more Japanese and German imports defying the U.S. recovery. To sort out any potential frictions there will have to be serious talks in Washington, Tokyo and Bonn (er… Berlin).