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2.7%  Q1 GDP    4.57%  avg. 30-year mortgage     9.5%  Unemployment

October trade gap makes surprise job, thanks to weak dollar

The trade gap between the United States and other countries unexpectedly dropped 7.6 percent from September to October, as a weak dollar made U.S. exports a bargain for the rest of the world.

The trade gap now stands at $32.9 billion, down from $35.7 billion in September, the Commerce Department said. Economists forecasted that the gap would widen to $36.8 billion in October.

Exports jumped 2.5 percent in October, led by U.S. farm products, autos and airlines. Imports rose only 0.4 percent. Imports would have risen further, but a decrease in oil imports held that number back. (Odd, isn't it, that demand for oil is dropping while gas prices are going back up over $3 per gallon?)

If the dollar remains weak through next year, demand for U.S. goods will continue to rise, which means U.S. factories will crank back up to produce new goods, increasing GDP and maybe eating a little bit into the high unemployment rate.

The trade gap is frequently referred to by its pejorative name, the trade "deficit," which implies that the United States is behind the rest of the world. But that idea is a dinosaur of a pre-globalization economy and you won't read it here.

Even though the Federal Reserve and the Treasury always say they support a strong dollar, in truth, a weak dollar helps the United States as it comes out of this recession. First, as we're seeing here, a weak dollar helps U.S. exports, because the stuff we make costs less for the rest of the world to buy.

Second, a weak dollar decreases the amount of debt the United States owes to foreign countries. That's why nations such as China have been beating up on the dollar. Because they hold so much U.S. debt, they're seeing what they are owed shrink before their eyes as the dollar grows weaker.

-- Frank Ahrens
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By Frank Ahrens  |  December 10, 2009; 11:03 AM ET
Categories:  The Ticker  | Tags: China, debt, dollar, trade gap, weak dollar  
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