WSJ story on trade in services omits a critical variable -- the dollar.
That's the number one reason the service surplus has been falling since 14/15.
(Tourism in particular is very exchange rate sensitive)
1/x
That's the number one reason the service surplus has been falling since 14/15.
(Tourism in particular is very exchange rate sensitive)
1/x
There is actually a decent correlation between manufactured exports and the services surplus -- both rose from 2003 to 2013 (abstracting from the shock of the crisis). Both have been falling since ...
2/x
2/x
Real services exports have tracked real goods exports (ex petrol) over the last five years -- neither has grown since the dollar appreciated in 2014!
(I know everyone wants the story to be Trump, but it isn't always)
cfr.org/blog/trumps-si…
3/x
(I know everyone wants the story to be Trump, but it isn't always)
cfr.org/blog/trumps-si…
3/x
This is also true of agricultural exports -- the soybean sector's troubles can be reduced to the U.S. export price, and the dollar's move in 2014 (and China's slump then) had a bigger impact than China's 2018-19 trade retaliation
fred.stlouisfed.org/series/IQ00100
4/x
fred.stlouisfed.org/series/IQ00100
4/x
This obviously is a pet peeve of mine -- stories about trade tend to reduce trade to trade policy, when the biggest driver of trade flows tends to be the exchange rate. The dollar's 14-15 appreciation knocked a percentage point off US exports, and I would argue output.
5/x
5/x
And the dollar's persistent strength, more than retaliation for Trump's tariffs, is the main reason why US exports (goods and services, setting petrol aside) have lagged global growth over the last 5 years.
fred.stlouisfed.org/series/TWEXBPA
6/6
fred.stlouisfed.org/series/TWEXBPA
6/6
