Why Aren’t Imports Growing Faster Than GDP?
Today’s report of fourth-quarter U.S. gross domestic product reveals an odd feature of this recovery: As the economy has expanded, imports have not grown more rapidly. That means expansion in the U.S. is providing less benefit to other economies than expected.
Nominal imports of goods and services in the last quarter of 2013 amounted to $2.77 trillion, while nominal GDP was $17.10 trillion. So imports were 16 percent of GDP, exactly the same share as in the fourth quarter of 2010.
In contrast, imports rose to 16 percent of GDP in the fourth quarter of 2006 from 13.4 percent in the fourth quarter of 2002. If imports had risen proportionally during this recovery, they would be more than $400 billion higher today, more than 8.5 percent of GDP.
Why is this happening? Part of the explanation involves the shale oil and gas revolution in the U.S., which is far from over. From 2002 to 2006, imports of petroleum (including related products) rose by 1 percent of GDP. Over the past couple of years, however, they have been declining. The shale revolution may also be causing some manufacturing activity to relocate to the U.S.; while imports of industrial materials and supplies rose by about half a percent of GDP from 2002 to 2006, they have barely budged during this recovery. We may well see even more drastic declines in petroleum and other imports as the full impact of the shale revolution is felt.
Another part of the explanation is global. As my Citigroup Inc. colleagues highlighted in the December Global Economic Outlook and Strategy report, growth in world trade, which was extraordinarily rapid before the financial crisis in 2008, has since slowed. From 1980 to 2007, global trade grew at about twice the rate of global GDP. In 2013, it grew only slightly more than global GDP. Citi’s economists point to multiple possible causes, including constraints on trade credit, reduced support for trade liberalization, exchange-rate adjustments, and the shift from physical to digital goods on the world market.
I expect U.S. GDP growth to pick up in 2014, and this is something I haven’t expected for the past few years. Now, the deleveraging process in the private sector is largely over, the excess housing inventory has been mostly worked off, state and local fiscal consolidation will no longer hamper growth, and the federal fiscal drag will be much smaller this year. Perhaps when growth picks up, imports will rise just as much. But I suspect they won’t.
(Peter Orszag is vice chairman of corporate and investment banking and chairman of the financial strategy and solutions group at Citigroup Inc. and a former director of the Office of Management and Budget in the Barack Obama administration.)
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