By: Matt Dodson and Molly Mann
Between 1985 to 1995 the United States economy shifted from one defined by balanced trade, in which exports roughly equaled imports, to an economy dominated by imports. The drastic change in net exports represented the transfer from a self-reliant US economy to one more globally influenced. The economy evolved due to specialization and gains from trade brought on by rising education levels. The increase in American education led to an increase in high-skilled employment opportunities decreasing the need for unskilled labor as factory jobs relocated overseas. This idea in specialization of goods allowed the United States to greater participate in global-trade. The Net Exports of Goods and Services Graph demonstrates the long term trends of increasing imports from 1970 through 2015.
While analyzing smaller sections of the graph, common themes appear during and following times of recession. The graph illustrates that net exports tend to decrease leading into recessions, contrasting with increases towards the end of a recession. The shift in net exports at the end of periods of recession bolsters the economy and generates a period of rebuilding. Even though the idea of specialization suggests that increased trade can prove beneficial in many ways, a government might cut back on international trade and focus on promoting domestic competition in response to economic struggles. During the short term, like a time of economic volatility, higher net exports have a positive effect on the economy, generating income and employment opportunities, while lower net exports tend to have a more negative effect on the national economy.
But how do net exports influence GDP? This graph presents the United States Gross Domestic Product in a percent change method showing yearly change where positive values represent economic growth from the year before and negative values indicate a decline from the previous year. The almost exclusively positive GDP percent change indicate that GDP continues to increase, although at a slower rate after the recessions in the 1980's, while exports rapidly decrease during this time. Notably, net exports comprise less than 4% of the US GDP, while categories such as goods and services consume over two-thirds. This indicates the importance of trading on the economy as a whole, but proves that net exports do not necessarily serve as predictors or definers of Gross Domestic Product figures. In conclusion, net exports improve understanding of the economic climate but fail to define the entire financial forecast.