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White House Press Secretary Jen Psaki tried to justify the 1.4% drop in the economy when asked by a reporter at the press briefing about the contraction in the gross domestic product (GDP).
In the middle of the press conference, Psaki stated, “On exports the number was down, but that is largely because our economy is doing better than many economies around the world.”
Net exports, which are the value of exports minus imports, have fallen by $192 billion in the last quarter, which translates into a reduction in GDP of $70 billion.
Although exports fell in January compared to December, exports increased during February. However, imports increased in both months, widening the U.S. net export deficit.
Since the rise of e-commerce and an economy over-stimulated by the injection of $5.6 trillion by the federal government, and a few more from the Federal Reserve (Fed) issuance, the ideal recipe was cooked to stimulate a previously unseen surge in imports.
Although consumption and business spending has remained strong, this increase in spending has also served as a trigger to increase imports and decrease business inventories, which negatively influences GDP.
Millions of Americans took advantage of the extra money in their wallets to, with a single click, buy countless products manufactured in countries like China.
Economist Milton Friedman used to say that the United States is the only country in the world that can “export inflation”, that is, it can issue dollars that will be accepted in the world without devaluing its currency as a reserve currency.
As the world has this demand for dollars, the United States can increase its imports without having to do the same with its exports. This has caused the trade deficit to expand to unprecedented proportions since the pandemic, a problem that the Biden administration has not been able to solve.
The announcement of the downturn in the U.S. economy comes at a time when several economists are warning about the risk of stagflation, i.e. inflation without economic growth.
According to a recent study by former Treasury Secretary Larry Summers and economist Alex Domash, periods of high inflation with low unemployment are usually followed by periods of recession.
At present, the U.S. economy is facing inflation that exceeds 8.5% per year, according to March data, which has ended up affecting the purchasing power of Americans, who have seen their salaries lose purchasing power despite the increases experienced in 2021.
Economist, writer and liberal. With a focus on finance, the war on drugs, history, and geopolitics // Economista, escritor y liberal. Con enfoque en finanzas, guerra contra las drogas, historia y geopolítica