March 27, 2015
Okay, for the 64,512th time, it is net exports that contribute to GDP, not exports. Apparently this distinction is difficult for people involved in economic policy to understand since they keep making the same mistake.
The point is straightforward. If the United States increases its exports because GM is exporting car parts to be assembled in Mexico and then imported back as a finished car to the United States, it will not be a net job creator. We used to have jobs at assembly plants in the United States. These are being replaced by jobs in assembly plants in Mexico. In this story exports increase, but net exports (exports minus imports) fall. Fans of intro econ know the accounting identity that GDP = C + I + G +(X-M), where the X-M stands for exports minus imports.
This is why the NYT seriously misled readers in an article on the impact of the rising dollar when it wrote:
“the sharp rise of the dollar threatens to undercut one of the principal drivers of the recovery in recent years: strong export growth for American companies.”
While exports have been a positive for growth, imports have been an even larger negative. According to our good friends at the Bureau of Economic Analysis (Table 1.1.2), the fall in net exports reduced growth by 0.22 percentage points in 2014. They added the same amount to growth in 2013, but have been a net negative since 2010. Of course net exports will almost certainly be more of a drag on growth due to the recent rise in the dollar, but it is not true that they had previously been a driver of the recovery.
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