It’s an interesting time in the U.S. economy. We’re experiencing a nine-year-long expansion with robust GDP growth, while a trade war is brewing between the U.S. and its major trade partners. So how important is trade to the U.S. economy, anyway?
Not very important, according to Torsten Slok, chief international economist at Deutsche Bank.
“The point is that trade is not really important for the U.S. economy. But it is really important for Europe and Asia and EM,” Slok wrote in an email to Yahoo Finance.
In a July presentation, he highlighted the U.S. economy’s little dependence on foreign trade compared to other major economies. Exports account for less than 10% of GDP in the U.S, while it makes up 40% of Germany’s GDP.
The U.S.’s reliance on imports is also lower than what you would expect. In 2016, imports only contributed 14.7% to U.S. GDP, which is only higher than three countries — Argentina, Sudan and Brazil — among the 164 countries in the World Bank dataset.
As the world’s largest economy, the U.S. is less exposed to trade than other large economies. That’s mostly due to the country’s large domestic market, robust agricultural output and rich natural resources.
This may give President Donald Trump some leverage in trade disputes as other countries try to minimize the negative effects on their economies, according to Slok. “Growth in the U.S. depends more on domestic consumer spending and domestic capex spending than on exports,” Slok wrote. “Whereas for countries such as Germany, exports are a very important driver of GDP growth.”
Some industries will get hurt by tariffs
While trade as a percentage of aggregated GDP is relatively small in the U.S., the impact on certain industries and geographic regions could still be devastating. Among them are autos and soybeans. More than 40% of cars in the U.S. are imported. Trump’s threat to impose tariffs on imported auto parts and cars has drawn opposition from major automakers.
While car production accounts for only 2.7% of the U.S. GDP, the political influence could be much more profound than the data suggest. According to Slok, swing states have more voters that work in the auto industry, including vehicle manufacturers, auto parts, and dealers. For every job on an automobile or light-truck assembly line, 10 additional jobs are created or supported in the economy.
Industries like auto have also been at the center of the tit-for-tat trade war. China, for example, levied 25% tariffs on U.S. soybeans starting in July. “The government who is doing the retaliation tries to retaliate on things that are gonna hurt the other country the most, not economically, but politically,” said Wallace Tyner, professor of Agricultural Economics at Purdue University. “What [can] hurt the president mostly is rural areas, where his base is.”
It remains to be seen how the pressure could influence Trump’s aggressive trade moves. For farmers, he already directed $12 billion in aid to help alleviate retaliatory tariffs imposed on agricultural products in the U.S.
“There are some sectors in the U.S. economy that depend heavily on trade, but the conclusion is still that at the macro level these sectors are small as a share of the overall U.S. economy,” said Slok.
Krystal Hu covers technology and economy for Yahoo Finance. Follow her on Twitter.
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