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March 10, 2011 at 17:35 PM EST
International Trade Forecast and US Relevance Strategy
As the International Trade deficit was reported expanded in January, we suspect some are questioning the Admini- stration's efforts to even the playing field. We offer here reassurance that this restoral of wider deficit reflects an improving economic state, and provide what we believe are the keys to America's long-term International Trade relevance.
Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.
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International Trade Forecast and US Relevance Strategy
International Trade data was reported today for the month of January. The trade deficit expanded broadly, to $46.3 billion, which was far wider than the -$41.0 billion forecast by the consensus of economists surveyed by Bloomberg. While you are likely concerned, be at ease, as the report reflects positively, at least through January.
Global economic growth was evident in the latest International Trade data, as both imports (+$10.5 Billion) and exports (+$4.4 Billion) increased. The signs for the US economy were positive as well, with American demand for imports rising substantially.
The trade deficit is composed of import and export activity, and reflects the imbalance between the two. You might be tempted to view an expansion of the deficit as a failure of the Obama Administration's efforts to balance trade between our nation and China. You would be wrong though, as our current economy reflects a healthy state when a deep trade imbalance exists, as our sourcing of goods from China and others at lower cost has preceded China's domestic development and demand for our specialized goods and our services expertise.
The deep dive in US and global economic activity occurred simultaneously with a narrowing of the trade deficit, as America's consumption economy cut back in spending. Likewise, as economic growth resumes, the deficit should expand, sort of like muscle memory. We should only consider the possibility of anything near trade balance over the medium-term though, and completely depending on the Administration's (or those to follow) success in leveling the fair trade playing field and in inspiring domestic manufacturing. Moreover, the developed American market has evolved into a service oriented exchange, and as the emerging markets develop, we might increase exports from our service sector. We currently enjoy a service sector surplus of $13.4 billion, but the goods deficit is $59.8 billion, as of January.
We say trade balance has a better chance of being accomplished over the "medium term," because over the short-term we expect the deficit to expand back toward the most recent normal state for a healthier economy. Indeed, coinciding with the past year's economic growth, January's trade deficit also expanded $11.7 billion over that of January 2010. Note the broader year-to-year difference than the month-over-month change, and recall the economic situation that existed one year ago.
Over the long-term, as emerging markets evolve into economies more closely resembling our own, competition will tighten. In other words, similarly to how we compete today in the auto industry with the Japanese and the Germans, we will compete tomorrow also with the Chinese and the Indians (in the same industry and in others).
Also, if all other factors (geopolitical, etc.) hold, eventually new low-cost producer nations will replace China as sources for commodity-like and other goods, reinforcing an outside manufacturing bias. Therefore, our best chance to remain relevant requires us to continue to innovate in order to lead in the provision of high technology; to protect intellectual property (IP); to ensure free and fair trade in terms of currency policy and IP standards; and to participate more broadly in emerging market development at a corporate level (like the American automakers are currently doing within India and China). Tomorrow, we should give companies like J.P. Morgan (NYSE: JPM), Netflix (Nasdaq: NFLX) and Robert Half (NYSE: RHI) every incentive to grow into those foreign markets, and we should require our trading partners to open the playing field to them.
To see the details of January's International Trade data click through here.
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Article should interest investors in Ford (NYSE: F), GM (NYSE: GM), Toyota (NYSE: TM), Bank of America (NYSE: BAC), J.P. Morgan Chase (NYSE: JPM), Goldman Sachs (NYSE: GS), Citigroup (NYSE: C), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), TD Bank (NYSE: TD), PNC Bank (NYSE: PNC), State Street (NYSE: STT), Janus (NYSE: JNS), T. Rowe Price (Nasdaq: TROW), General Electric (NYSE: GE), Wal-Mart (NYSE: WMT), McDonald's (NYSE: MCD), Alcoa (NYSE: AA), American Express (NYSE: AXP), Boeing (NYSE: BA), Caterpillar (NYSE: CAT), Cisco Systems (Nasdaq: CSCO), Chevron (NYSE: CVX), DuPont (NYSE: DD), Walt Disney (NYSE: DIS), Home Depot (NYSE: HD), Hewlett-Packard (NYSE: HPQ), IBM (NYSE: IBM), Intel (Nasdaq: INTC), Johnson & Johnson (NYSE: JNJ), Kraft (NYSE: KFT), Coca-Cola (NYSE: KO), 3M (NYSE: MMM), Merck (NYSE: MRK), Microsoft (Nasdaq: MSFT), Pfizer (NYSE: PFE), Procter & Gamble (NYSE: PG), AT&T (NYSE: T), Travelers (NYSE: TRV), United Technologies (NYSE: UTX), Verizon (NYSE: VZ), Exxon Mobil (NYSE: XOM).
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