International Trade

Trade Winds

And we're caught in the trade winds
The trade winds of our time

Can the growth in international trade affect the US economy?

According to the United Nations Center for Trade and Development, global trade (exports) have grown from $61 Billion US Dollars in 1960 to a value of almost $20 Trillion US Dollars in 2018.  The US Dollar serves as the international reserve currency and has served this role, exclusive of gold, since 1971.  The Gross Domestic Product of the United States is also $20 Trillion  in 2018,  about 12% of which is exports.  Even if the US trade dropped to zero, this international trade between the countries would still require US Dollars.

A question becomes what is the future of international trade?  Fitting a Compound Annual Growth Rate curve to the trade from 1960, would forecast that the Global Trade in 2030 could be $85 Trillion.  However, if the pattern of recent years is fit to a logit curve, this suggests that international exports could amount to $24 trillion in 2030.

This difference in forecasts has implications for the domestic monetary policy of the Federal Reserve Bank.  While the Federal Reserve can control the domestic economy, they have little ability to affect international trade. International trade, which includes US exports, is projected to be as large as the US domestic economy, if not larger.  This has major implications for domestic national monetary policy.  

This conflict between domestic monetary policy and the international trading when a domestic currency is used as the international reserve currency was anticipated in the 1960s by the Belgian-American economist Robert Triffin. He pointed out that the country whose currency is the global reserve currency, that foreign nations wish to hold, must be willing to supply the world with an extra supply of its currency to fulfill world demand for these foreign exchange reserves.

International trade might be equal to the US domestic GDP by 2030, or might be several times greater than this amount.  In any event,  the continued use of the US Dollar as a global exchange has become a serious problem,  It remains to be seemed if the change in trade winds is a problem that can blow down the US economy.