Wednesday, April 22, 2009

A Closer Look at GDP -- Exports and Imports

The US is a net importer -- meaning we import more than we export. Therefore, this sub-category of GDP subtracts from overall economic growth. The reason is simple: when a country imports more than it exports it sends more money overseas from trade than it receives from the goods it sells. Therefore, there is a new outflow of funds as the result of trade.

Let's start with a graph of real exports:

Click for a larger image

This chart tells us some important information. First, the US exports about twice as many goods as services. In addition, until the first quarter of this year, real exports were increasing at a strong rate as were services. In other words, the US wasn't the laggard it is often portrayed as in the press.

On a real basis, the import of services really isn't that important. On a real basis, the US imported $233 billion of services in the first quarter of 2001 and $293 billion of services in the fourth quarter of 2008. Imported goods area at least 5 times the amount of imported services making them far more important. Notice that in the beginning of 2006, real imports started to stop their upward move. On a real basis, they printed between $1.909 trillion and $1.985 trillion over a period of 11 quarters. Over the same period, export goods increased, leading to a decrease in the trade deficit: