Young Americans: International trade is the best way to make your fortune.

Commentary about business and finance.
Aug. 16 2010 5:59 PM

Trade Is the New Plastics

Young Americans need to learn to sell and buy overseas.

Learn to trade and your cargo ship will come in. Click image to expand.
Learn to trade and your cargo ship will come in

"Just one word," Mr. McGuire tells Dustin Hoffman's Benjamin Braddock in The Graduate. "Plastics."

What's the one word of advice a well-meaning professional would give to a recent college graduate today? China? India? Hedge fund (that's two words)? Plastic surgery? How about trade?

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When the Commerce Department reported last week that the trade deficit in June spiked to nearly $50 billion, it set off a new round of economic doomsaying. Imports, which soared to $200.3 billion in the month, are subtracted in the calculation of gross domestic product. The larger the trade deficit, the smaller the GDP. Should such imbalances continue, pessimists say, they could contribute to a slowdown in growth.

But there's another way of looking at the trade data. Over the past two years, the figures on imports and exports seem not to signal a double-dip recession—i.e., a renewed decline in the broad level of economic activity in the United States—but an economic expansion.

In June, imports were $200.3 billion and exports were $150.5 billion—total trade in goods and services of $350.8 billion. In June 2009, by contrast, imports were $155 billion and exports were $128 billion—a total trade in goods and services of $283 billion. In other words, the volume of U.S. trade with other countries in June was up nearly 24 percent from the year before, with exports up 17.5 percent and imports up 29 percent. Trade is nowhere near its peak—in July 2008, when exports were $165 billion and imports were $232 billion, the monthly total was nearly $400 billion. But over the course of 2010, as the rate of economic growth has slowed, trade has gained momentum. In June, exports were 5 percent higher than they were in December 2009, and imports were up 10.5 percent.

The rising volume of trade—more goods and services shuttling in and out of the United States—is good news for many sectors. Companies engaged in shipping, trucking, rail freight, delivery, and logistics have all been reporting better than expected results. The rising numbers signify growing vitality in foreign markets—when we import more stuff, it puts more cash in the hands of people around the world, and U.S. exports are rising because more foreigners have the ability to buy the things we produce and market. The rising tide of trade is also good news for people who work in trade-sensitive businesses, especially those that produce commodities for which global demand sets the price—agricultural goods, mining, metals, oil.

And while exports always seem to lag, U.S. companies are becoming more involved in the global economy with each passing month. General Motors sells as many cars in China as it does in the United States each month. While that may not do much for imports, it does help GM's balance sheet—and hence makes the jobs of U.S.-based executives more stable.

One great challenge for the U.S. economy is slack domestic consumer demand. Americans are paying down debt, saving more, and spending more carefully. That's to be expected, given what we've been through. But there's a bigger challenge. Can U.S.-based businesses, large and small, figure out how to get a piece of growing global demand? Unless you want to pick up and move to India, or Brazil, or China, the best way to do that is through trade. It may seem obvious, but it's no longer enough simply to do business with our friends and neighbors here at home.

As they figure out how to monetize eyeballs in the United States, for example, smart media companies should also be figuring out how they can invest in and promote new ventures in other countries—a la Slate.fr. Newsweek'sdomestic struggles have been well-documented, but several foreign publishers license the magazine's name and content to produce local, foreign-language versions. Newsweek Pakistan is about to launch. It's a mystery to me that every U.S. print media company doesn't have an aggressive strategy to become heavily involved in India. Resorts and hotels that don't have a plan to appeal to the growing legions of Chinese people who have the ability and desire to travel to the United States are similarly missing out on a large potential opportunity.

Companies and individuals who don't have a strategy to export more, or to get more involved in foreign markets, or to play a role in global trade, are shutting themselves out of the lion's share of economic opportunity in our world.

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