We have been getting significant positive economic news of late, but here is one you may have missed because for some reason it has not generated much media coverage.
Our nation’s current account deficit – the trade deficit – in the last quarter of 2013 was the lowest it has been in 14 years. It was down to $81.1 billion from $96.4 billion in the preceding quarter which was the smallest gap since the third quarter of 1999. As a percentage of the national economy, the current account deficit declined to 1.9 percent, the lowest since the third quarter of 1997.
For as long as I care to remember, recurring reports of the soaring trade deficit were routinely cited as justification for protectionism. There was a drumbeat of complaints that foreign nations with their low wage scales and nonexistent environmental rules, not to mention currency manipulation, were having us for lunch on the trade front. They were flooding our shores with low cost consumer goods, destroying jobs in U.S. manufacturing.
In reality, the primary driver of the trade deficit was not the deficit in consumer goods but rather petroleum. For decades we have been dependent on foreign sources of oil to slake our seemingly endless demand, as domestic resources dried up. That not only represented a huge outgo of U.S. dollars, but a significant portion of that money stream was used to prop up repressive governments and fund terrorist groups.
But all of a sudden the U.S. energy picture – thanks to refinements in fracking technology – is much more robust than anyone thought possible. We are actually on the verge of becoming energy independent – a mystical goal politicians have spoken of often over the years without result. The port facilities we had been building to offload liquefied natural gas (LNG) from other nations are being converted to handle exports. By 2016, we will probably be exporting more oil and natural gas than we import.
The energy story should not distract from our success in trade of the goods and services most people associate with the trade deficit. Our trade deficit in goods and services decreased $3 billion from January 2013 to January 2014. Exports were up $5.7 billion, or 3 percent, and imports were up $2.6 billion or 1.2 percent.
As long as our exports of goods and services are outpacing imports, we are on the right track. As I have noted in recent months, our manufacturing sector is picking up steam thanks to advances in efficiency and productivity. We are closing the gap with our foreign competitors as a growing number of U.S. manufacturers are both exporting more abroad and bringing more production home.
In sum, the falling trade deficit is a clear confirmation of our competitive gains in both energy and manufacturing.
Jerry Jasinowski, an economist and author, served as president of the National Association of Manufacturers for 14 years and later The Manufacturing Institute.