Thursday, June 9, 2011

I'll Trade You

You like country music and your friend just got the last Kenny Chesney tickets. There must be something you can give them (its Kenny Chesney!).  Now bigger: America has three Kardashians, two Hilton sisters, and a “photogenic” Congressman who doesn’t like the burden of wearing pants.  Is it fair that we were endowed with such “resources” when the rest of the world doesn’t have any? (Sorry world, Germany already claimed David Hasselhoff and Italy was gifted the cast of the Jersey Shore.) Want to trade? (We’ll take an X-Factor from the UK to start.) We are willing to negotiate – all 3 Kardashians for Simon Cowell? But wait, there’s more: we’ll even throw in the fun loving Congressman if you call within the next 20 minutes!

We’ve been trading stuff with other people for as long as we can remember (and then some) – in fact, people have engaged in trading for thousands of years! Call it a sign of our advanced intelligence – or common sense – the basic idea of trading is to make all parties involved either indifferent or better off. More simply, trading is an efficient way to get what we want with what we have. It’s a habit we learn young, as in baseball cards and Halloween candy (not including the untradeable “candy”, like raisins). And then we get the secret ingredient for the big time trading – money. Then the gloves are off. The way trading evolves over the course of our lives is not unlike how its evolved over centuries, we are becoming more reliant on trading to get the stuff we want and need.

Not only are we trading more, but more people are joining the party (we’re global baby!). We are trading on a massive scale – data released today shows in April people in other countries bought $176 billion in stuff from us (exports) and we bought $219 billion in stuff from them (imports). You may have noticed that while trading in the small time leads to a “zero-sum” outcome (no one loses), in the bigger world our trading is a bit uneven. In other words, by importing more than we export, we are getting more value from other countries than what we gave for it – and common sense tells us that is not something we would expect someone to agree to indefinitely. Yet this difference in what we buy versus sell (called “trade deficit”) is growing.  On the positive side, from April 2010 to April 2011, exports grew faster than imports, 18.8% versus 15.9%.  If this trend continues, over time we can help correct the imbalance (good for us).

While we may want to share our most valuable “resources” with the world, it turns out what we do share is much less glamorous. From April 2010 to April 2011 the exports and imports that had the biggest (and almost equal) growth were “industrial supplies and materials” (like machinery and chemicals). What was a large source of the export-import imbalance (trade deficit) over the last year? The stuff we buy for ourselves (“consumer goods”)! For all of our talk of “Buy America,” over the last year we increased the amount of stuff we bought from abroad by $6.1 billion, while other countries only increased the “consumer goods” they bought from us by $1.6 billion.

We may not regularly stop to think about how the stuff we enjoy and rely on every day can come from all over the world (oh, I LOVE your sandals, were they made in China or Indonesia? And packaged in Taiwan, and transported on a U.S. ship to California?). Just as we rely on other countries, maybe we should think about how to make other countries just as reliant on us (we have so much to offer!). The rest of the world is another market for our stuff, and now they have money! What do you want to trade?

(Bureau of Economic Analysis)

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