Business

Saturday 10 December 2016

Mark Doyle: Short view

Published 17/10/2010 | 05:00

The US August trade figures show that while exports are growing modestly, imports are leapfrogging forward, widening the gap between the two.

  • Go To

Oil is a big component of American imports: in 2009, five times more oil was imported than exported. Consumer products and cars are also significant contributors to the import conundrum.

But ignoring the fact that general consumption of goods and services is rising, the widening trade deficit really means that America is choosing to buy foreign goods over its own. This phenomenon, in the long run, is damaging to the economy and frustrates domestic growth and, by dint, the creation of local jobs which America desperately needs.

In essence, America is making less stuff than it used to and, by importing from foreigners, it is sending jobs into countries like China, Mexico and Japan. It is not unreasonable therefore to suggest that unemployment will remain high in the US so long as imports continue to race ahead.

But perhaps the biggest issue these days is the foreign exchange rate between the US and the Chinese Yuan. Under a normal trading scenario, the Yuan would have appreciated in value by now given the abnormal levels of growth China has enjoyed over the past 10 years. This would have made goods imported from China more expensive and perhaps would have given American produced goods a chance. This has not happened and the Chinese are blatantly suppressing the value of their currency for their own gain.

The trend of the trade deficit is already leading many to pull back their estimates for growth next year. This will not suit the Obama Administration whose run for a second term will come down to the issue of jobs. Sooner or later the US is going to have to take a stand against China.

Max Doyle is a principal of Prime Focus Management Ltd specialising in investment and turnaround of Irish companies

Sunday Independent

Read More

Promoted articles

Editors Choice

Also in Business