Raymond Richman - Jesse Richman - Howard Richman
Richmans' Trade and Taxes Blog
Trade Deficit Saps 2nd Quarter Growth
Today's economic story is very simple. The Obama administration and Congress have been trying to pump up the economic tire, without first patching the trade deficit leak. The faster they pump, with stimulus after stimulus, the faster the trade deficits grow.
As shown in the chart below, taken from data released this morning by the BEA, increased purchases by consumers contributed 1.1% to 2nd quarter economic growth, increased fixed investment purchases by businesses contributed 2.2% to growth, increased purchases by government contributed 0.8% to growth, and inventory build-ups contributed 1.0%. But net exports sapped 2.7% from GDP growth as imports increased without a corresponding increase in exports. If you add it all up, GDP grew by 2.4%.
But inventory build-ups are not sustainable. Businesses produced more goods than they sold, something they will not keep doing. If you subtract inventory build-ups, economic growth was a paltry 1.4% annual rate during the second quarter. With such slow growth, the U.S. economy could remain depressed below 2007 levels for quite some time.
There is a simple way that Congress could get the economy going: PATCH THE LEAK, such as by enacting the scaled tariff.
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Atlantic Economic Journal: