Exports continue to impress

U.S. exports have contributed significantly to economic growth in recent years. As the chart above shows, exports of goods (stuff actually made here) are at an all-time high, and have exceeded their 2008 high by 10.6%. Goods exports were up at an annualized rate of almost 8% in the first half of this year, despite the weakness in the Eurozone.

As the above chart shows, the U.S. economy continues to become more "internationalized." Exports are now at an all-time high relative to GDP, having grown 275% more than the economy as a whole since 1970. It should also be clear in this chart that the trade deficit has narrowed considerably, from a wide of almost 6% of GDP in 2005 to just over 3% today. Almost all of the improvement has come from increased exports. That is the right way to solve a deficit problem: grow.

Of course, the flip side to the narrowing of the trade gap is a reduction in the size of capital inflows. Foreigners are now less willing to invest the proceeds of their U.S. sales in U.S. financial assets, and more willing to purchase U.S. goods and services instead. If foreigners were to decide to completely stop lending money to or investing in the U.S., we would see our exports increase even more.