Friday, August 13, 2010

The United States, Inc.

Sometimes I wonder whether the United States of America should be called United States Incorporated.   We all know that if a company is to be successful and provide economic value to it's employees, it needs to sell goods and services to customers for a price that is higher than the cost of creating them.   This is profit and prosperity.   A company that creates goods, but at a cost higher than it can sell them is known as just another bankruptcy. 

Can a similar analogy be made for sovereign economies?  If we look at a nation and see that it consistently spends more money on goods and services acquired from other countries than it sells to those countries, can we assume that country will not be in business very long?  Over time, capital will slowly move to the countries that are the best producers from those that aren't.  Unemployment, lower standards of living for it's citizens, security issues, and a host of other problems can only result.    It seems to me that the balance of trade is the equivalent of the corporate earnings report.

Each country's balance of trade is made up of the buying and selling of Goods and Services.  Goods are defined as tangible objects that are purchased that provide economic value to the acquirer, while Services are defined as activities that the gives the acquirer economic value.   The purpose of this post is to look at the June 2010 Balance of Trade data for Goods and see our economic earnings report.    (The source of the this data is published on the US Census Bureau website - http://www.census.gov/foreign-trade/data/index.html

In June, 2010,  the US imported $60 bln more than it exported.  The following chart and graph show the top 5 categories of goods that made up the deficit, in terms of dollar value.



Represented as a pie chart, the data looks as follows:



Of a trade deficit total of $60 bln, Oil, Gas, and Transportation Equipment represents about $25 bln, or 42% of the deficit.   The US buys its vehicles and the fuel to run them mostly from other countries.    It would seem that a policy of creating incentives to develop world leading alternative energy vehicles has the potential to significantly reduce our dependence on other countries for transportation related goods and improve our country's 'Income Statement.'  

Computers and Electronics makes up a huge percentage of the deficit at 31%.   I believe this is primarily consumer electronics like televisions and cell phones.   What this number also represents is the outsourcing of computer systems manufacturing to others.   Is Dell and Apple designing cutting edge products in the United States, but purchasing all the necessary components like memory and disk drives from other countries?    Do we have the intellectual capacity to design these components as well as our overseas suppliers?  Can improvements and automation of our factories help bring these functions back to the US?   Do the trends we see in manufacturing productivity give us the potential to start bringing this outsourced production back home?  

What else is interesting about these numbers is that all the other product catagories outside the top 5 represent only 8% of the overall deficit.   This seems to imply that there is trade parity across these other catagories.

Another way to look at United States, Inc. is to see what our key products are.   The chart below shows our countries Top 5 Goods product lines. 






Most of the items are self explanatory.   Transportation is an important product for United States, Inc.  Transportation related items, such as automobiles and commercial jets probably make up the bulk of the Transportation Equipment category at 14%.  Chemicals, Machinery, and Computer Equipment make up the other key products.   Re Exports defines the activity of brokering imports from other countries and immediately exporting them.

Conversely, we can also look at the key products we import from other countries.





As you would expect from the Deficit chart. Oil and Gas, Computers and Electronics, and Vehicles are the key products we buy from other nations.

More to follow...

By the way, our top product catagories where we run a surplus in the trade balance are Reexports and Scrap Metal...

1 comment:

Robert said...

So, Rick vis-a-vis manufacturing, a huge factor in "productivity" (if you think of it in dollar terms) is the cost of labor. Will US workers do the same job as Chinese workers, for the same pay? Yes, quality control was a factor in the 1970s, but I think most current job "exports" are motivated by wage differentials. As long as we have wage-competitive manufacturing societies to import products from, we will continue to export manufacturing jobs to them. The answer to sustained US economic dominance? Innovation, probably, supported by education. Of course, until we as a nation broadly turn and worship the God who has prospered us, we will continue the slide. Read the Old Testament for lessons from Israel's history.