January 29, 2011
Politicians routinely say things that are not true to push their trade agreements. For example, they call them “free trade” agreements (everyone likes freedom) even though they do little to free trade in highly paid professional services (e.g. doctors’ and lawyers’ services) and actually increase protection in some areas like copyrights and patents.
They also say silly things about exports creating jobs, without pointing out that it is net exports (exports minus imports). If any politician was actually stupid enough to believe that exports by themselves create jobs then he would be advocating imports of hundreds of billions of dollars of goods from Mexico and Canada and then re-exporting them to create jobs. Even the people who hold high elected office don’t believe anything that crazy.
Unfortunately the media largely cooperate with the politicians’ efforts to push trade deals. Hence they refer to them as “free trade” deals and they rarely point out that anyone talking about job creation from exports, rather than net exports, is being misleading.
The media seemed to be in the trade agreement promotion mode in its reporting on the 4th quarter GDP report. The second most important factor (after consumption) in the 3.2 percent growth rate reported for the quarter was a 13.6 percent drop in imports. The domestic production that replaced these imports added 2.4 percentage points to growth for the quarter. This fact seemed to go virtually unmentioned in the reporting on the GDP report, as though the media did not want to put the idea in people’s heads that lower imports means higher growth.
As a practical matter the fall in imports was almost certainly associated with the slower pace of inventory accumulation reported for the quarter. It is likely that inventory accumulation will rise to a more normal rate in the first quarter of 2011. This will be a boost to growth, however the corresponding jump in imports will be a largely offsetting subtraction.
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