International Trade and exchange rate behavior... losing the balance (c) 27-214 Gary R. Evans. May be used for non-profit educational purposes only without permission of the author. 3,, Exports vs. Imports (Millions $: 1975-213p) 2,5, 2,, 1,5, Deficit: $475 billion Imports: $2.75 trillion 1,, 5, Exports: $2.27 trillion 1975 198 1985 199 1995 2 25 21 Imports Exports Source: Bureau of Economic Analysis, U.S. International Transactions Accounts Data, Table 1 1
$ millions 1, -1, Merchandise Trade (Goods) Deficit 1975-213p Source: Bureau of Economic Analysis, Table 1 Interactive tables -2, -3, Question: Is this necessarily bad?? -4, -5, $73.91 billion in 213-6, -7, -8, -9, 1975 198 1985 199 1995 2 25 21 $ billions 25 Services Surplus 1975-213 $229.46 Billion in 213 2 15 Includes shipping, insurance, financial and legal services, education, consulting 1 Source: Bureau of Economic Analysis, Table 1 Interactive Tables 5 1975 198 1985 199 1995 2 25 21 2
Major U.S. Trading Partners Annual 213p, $ millions (Goods and Services) Country/Region Exports Imports Balance European Union 475,71-55,298-74,597 China 156,637-455,74-299,67 Canada 365,835-367,73-1,895 Mexico 255,73-33,529-47,826 Memo: OPEC 111,68-163,992-52,384 Japan 114,589-172,899-58,31 MidEast 96,513-124,751-28,238 Idi India 34,466466-6,87-26,44 OPEC: Algeria, Angola, Ecuador, Iran, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, UAE, Venezuela. Source: Bureau of Economic Analysis, Table 12 Interactive Tables $ millions What goods do we export? (213) 6, 5, 4, 3, 2, 1, 148,79 525,312 534,462 Agricultural Products 152,18 165,754 Industrial Supplies Capital Goods Automotive ti Consumer Goods Other Goods 53,322 Our strength is in industrial supplies and capital goods, which includes aircraft. Source: Bureau of Economic Analysis, International Economic Accounts, Table 2a. 3
The Growing Importance of Energy Exports $ Millions 18, 16, 14, 12, 1, 8, 6, 4, Source: Bureau of Economic Analysis, Table 2a Interactive tables 2, 1999 2 21 22 23 24 25 26 27 28 29 21 211 212 213 Coal Petroleum Natural Gas What goods do we import? (213) $ Millions 6, 5, 4, 3, 315,257 557,271 39,654 535,841 387,249 Foods, Feed, Beverages Industrial Supplies (1) Capital Goods Automotive Vehicles & Parts Consumer Goods Other Goods Petroleum Products (1) Excluding petroleum products, which are shown separately. 2, 116,2 1, 72,282 Compare consumer goods and vehicles to exports. Source: Bureau of Economic Analysis, International Economic Accounts, Table 2a. 4
What Services Do We Export? (213) $ millions 25, 2, 15, 226,128 156,883 129,331 Travel and Transportation Business, Professional, Technical Royalties and License Fees Financial Services Education Insurance Services Telecommunications Other 1, 81,27 5, 26,357 15,311 14,83 1,535 Source: Bureau of Economic Analysis, International Economic Accounts, Table 3a. What Services Do We Import? (213) $ millions 2, 18, 16, 14, 12, 1, 182,266 119,846 Travel and Transportation Business, Professional, Technical Insurance Services Royalties and License Fees Financial Services Telecommunications Education Other 8, 6, 4, 5,59 41,291 18,27 2, 7,633 6,393 Source: Bureau of Economic Analysis, International Economic Accounts, Table 3a. 1,485 5
Trade and "Current Account" Trading Partners Goods and Services deficit... must be offset by financial flows going the opposite way United States When the U.S. runs a large goods and services deficit with the rest of the world, the $$ cash that accumulates overseas must eventually find an outlet back in the U.S. in the form of foreign purchases of U.S. businesses, investment in the U.S. stock/bond markets, or through purchase of U.S. Treasury Securities. "We are going to owe the rest of the world forever," Warren Buffett on CNBC, March 2, 26. This all has to "balance": All U.S. International Transactions ($ millions) Goods and Services 212 213p Exports 2,21,585 2,271,386 Imports -2,745,24-2,746,249 Financial i Transfers US private net investment abroad -178,341-558,56 Foreign private net investment in US 149,962 622,322 US government overseas assets * 85,331 1,975 Foreign government domestic assets 393,922 283,744 US income on overseas assets 776,364 789,65 Foreign income on US assets -537,815-545,16 Unilateral transfers net -129,588-133,179 Other and statistical discrepency -25,18 14,8 Balance Notice how the gap in trade is offset by investment flows. Our $ are used to buy goods, those $ return to U.S. in the form of investment in U.S. assets, some financial assets and real estate, and a lot of US government debt. * Normally negative. Source: BEA International Transaction, Table 1 Interactive Tables These are all flow variables, or deltas. The 622,322 means that $622.322 billions was invested in the U.S. by overseas investors in 213. These categories show earnings that are the result of investments in years past. 6
Where is the returned money invested? Foreign Net Investment in the U.S. ($ millions) 212 213p Total lforeign Investment tin the U.S. US 543,884 96,6666 Foreign Government 393,922 283,744 U.S. Treasury Securities 433,155 235,523 Other U.S. Government Securities -118,495-3,875 U.S. Bank Deposits -1,572 6,943 Other 8,834 18,153 Private 149,962 622,322 Direct Investment 166,411 193,36 U.S. Treasury Securities 156,385 22,22 Other U.S. Government Securities 196,98 44,33 U.S. Bank Deposits -387,378 29,536 Other 17,636-27,97 Source: BEA International Data, Table 1, Interactive Tables Severe volatility!! Usually about half is foreign government, half foreign private, spread out fairly evenly. Early in this crisis, much of the emphasis was toward U.S. Treasury securities and away from everything else, including bank deposits. But since 21, low yields on Treasury securities evened this trend. Note the massive withdrawals from US bank deposits in 212. Overseas Accumulations of Financial Assets (mostly dollars) Source: International Monetary Fund, Currency Composition of Official Foreign Exchange Reserves (COFER), December 3, 213 When our overseas trading partners run trade surpluses with us, their financial assets accumulated by their governments are classified as foreign exchange reserves, and are typically held as U.S. Treasury securities. 7
Who owns the U.S. Treasury Debt? Figure 2 Ownership of Privately Held U.S. Treasury Debt December 1995 June 213 Billions $ % total Billions $ % total Deposit institutions 315.4 9.5% 31.6 3.% US Savings Bonds 155. 4.7% 18.9 1.8% Private pension funds 142.9 4.3% 478.9 4.8% S&L govt pension funds 28.2 6.3% 241.1 2.4% Insurance companies 241.5 7.3% 261.1 2.6% Mutual funds 225.1 6.8% 924.4 9.3% State & local governments 289.8 8.8% 526.6 5.3% Foreign holdings 835.2 25.3% 5,595.7 56.2% Other (mostly individuals) 864.6 26.1% 1,454.6 14.6% Total privately held 3,37.7 1.% 9,964.9 1.% Memo: Total Debt: 16,738.2 Held by FRS & IG accounts: 6,773.3 4.5% Source: U.S. Treasury Bulletin, December 213, Table OFS-2 The Good and the Bad of the the Trade Deficit The good... keeps inflation in check very consumer-friendly encourages development in emerging nations encourages political alliances with the U.S. forces many domestic industries to be competitive The bad... dollar cash generated from these sales must be recycled back to the U.S., currently leaving us indebted to China, petro-nations and other nations some industries are damaged and some jobs are lost 8