Buried on page 2 of today’s Wall Street Journal is a single-columned story headlined “Slow Spending Helps Narrow Trade Deficit.” After decades of a stagnating exports and steadily rising exports, the United States trade gap narrowed 6.9 percent in December to $58.8 billion. Despite higher oil prices, the trade gap for the full year narrowed 6.2 percent — the biggest decline in percentage terms in 16 years. At last, the positive impact of a weaker dollar is kicking in.
Why does the shrinking trade gap matter to a blog that focuses exclusively on Virginia? Because Virginia’s economy is inextricably tied to global trading patterns. Not only that, but lawmakers are being urged to make massive infrastructure investments based on those global trading patterns.
Hampton Roads is undergoing a massive expansion of port capacity predicated on the view that the volume of imported containers, mostly from China, will continue basically forever. Anticipating a surge in the volume of cargo shipments, port and maritime interests are urging lawmakers to spend billions of dollars to build a Third Crossing and upgrade U.S. 460 in order to accommodate those trucks. To pay for those multi-billion investments, Hampton Roads politicians have yoked the citizens and businesses of the region with significant transportation taxes.
But no trend continues in a straight line forever. Even the world’s largest economy cannot sustain balance-of-payment deficits approaching $1 trillion — that’s trillion with a “tr” — a year forever. Inevitably, the value of the dollar has plummeted, and there is little prospect, given the easy-money regime of the Federal Reserve Board, that it will get stronger any time soon. Americans have seen the downside of the weak dollar in the form of higher prices for oil and other imported goods. Now we’re finally seeing the upside. Exports rose to a record $144.3 billion in December. More to the point of this blog post, as the WSJ reports:
Exports rose while imports fell. That underscores a shift in the economy as domestic consumer spending slows and foreign demand for U.S. goods remains strong. … The drop in nonpetroleum imports — a major gauge of consumer demand — was widespread. … “Disturbingly, the drop in imports was led by autos and consumer goods,” wrote Lehman Brothers economist Drew Matus.”
As far as the Ports of Virginia are concerned, it shouldn’t much matter whether exports and imports are rising and falling as long as the same volume of goods gets funneled through the ports. But the ratio of imports to exports very much matters to transportation planners. Right now, thousands of trucks pick up containers in Norfolk, haul them to inland destinations, and then dead-head back to the port to pick up more containers. Rising imports implies the need for more trucks — and highway capacity. But a leveling off of imports suggests that the anticipated surge in truck traffic may not materialize. The surge in exports poses no comparable problem because rising volumes can be accommodated by filling up trucks now driving back empty to the ports.
What worries me is that the business-political establishment of Hampton Roads will plunge ahead blindly with its monumental road improvement projects, saddling the region with a massive extra tax burden in order to handle an increase in imports that never materializes. Hold gun firmly in hand. Cock trigger. Point gun to head. Pull trigger.
Declining imports and rising exports have other implications that Bacon’s Rebellion shall explore as occasion permits. One trend worth watching: A surge in exports could underpin the U.S. economy, strengthening the manufacturing sector to offset weakness in the homebuilding and financial sectors. The economic downturn may not be as severe as anticipated. That may be good news for lawmakers in Richmond fashioning the next two-year budget.
A second trend worth watching: A newly competitive U.S. manufacturing sector is very, very good news for Virginia’s mill towns, which have seen their manufacturing-based economies hollowed out for some three decades now. With U.S.-based manufacturing suddenly looking more competitive, Virginia should consider investing more heavily in the Virginia Economic Development Partnership, the organization that promotes both Virginia exports and inbound manufacturing investment. We could well see a pick-up in the number of announcements like the one made yesterday in which Com.40 Ltd, a Polish manufacturer of mattresses and upholstered furniture, will invest $36.3 million and create 813 jobs in the City of Danville.
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