US: Focus on trade links and export structure

On balance, statistics portray international trade as being an obstacle to US economic growth. Since 1991, a clearly positive contribution was only registered during the last crisis, because of a slump in imports. Without this special influence, the negative impact for the last 25 years has averaged at -0.3 percentage points. Foreign trade lowered economic growth by -0.2 percentage points as well in 2017. Whether the punitive tariffs on steel and aluminium, which are about to be imposed shortly, will seriously impact the economy already this year and the next, will depend on whether the trading partners in question will respond with a series of retaliatory measures. For now, we assume that bilateral agreements will be met with the most important trading partners, thus avoiding a trade war.

Trump’s reservations against global trade or his doubts about the advantages of international trade for the US are likely to have been confirmed by the continued deterioration of the trade balance during his first year in office. In any event, trade statistics on the international exchange of goods and services show a deficit of USD -567bn for 2017. This was attributable on the one hand to a slight decline in the traditional surplus in the exchange of services – still the second consecutive negative development. However, the widening international trade gap clearly had much greater consequences. For the first time since 2008, a deficit of less than USD -800bn was reported.

Breaking down the trade relationships by regional interconnections clearly shows that the deficit has increased since 2007, especially vis-a-vis China and the European Union. A significant part of the deficit in US foreign trade is with Asia, where a gap of around USD‑370bn was recorded in 2017. This represents around two thirds of the entire trade balance. US statistics show a deficit of almost USD -340bn with trading partner China; this gap has quadrupled since 2000! On the other hand, the foreign trade gap with the EU and Germany has “only” more than doubled roughly since the turn of the century.

However, machinery is no longer the most important export product from the United States. It now makes up for only one quarter of US exports, while one third of exports is now accounted for by services, mainly in the areas of travel and tourism and corporate services. Licence fees and financial services are also highly significant. Nonetheless, protectionist retaliatory measures taken by the trading partners in the form of punitive tariffs would not only become a burden for US exports but also for the other economic sectors.

Ultimately, an escalation of the conflict would not only adversely affect the US economy but numerous other countries as well. Hence, the likelihood of smooth progress being made in the trade conflict is still quite high. Under these circumstances, we forecast economic growth of 2.5 percent this year. Excluding the dampening effect brought about by a negative economic contribution from foreign trade, the growth rate would however be 0.3 percentage points higher. A trade war would also restrain domestic demand, in other words, private consumption and investment. We would then have to revise our growth outlook downwards, and not only for the US.

 

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