Reflecting record oil prices, the U.S. Department of Commerce reported Jan. 11 that the trade deficit soared in November 2007, reaching its highest point in 14 months.
Measuring the gap between U.S. exports and imports, the trade deficit jumped by 9.3 percent in November to $63.1 billion, exceeding the $60 billion predicted by economists. Surging oil prices were blamed for the 10.9 percent increase in the price of imported goods, the biggest in 20 years.
For the tech sector, worrisome trade deficit numbers coupled with other signs that a recession is looming, including the weakened dollar and declining manufacturing output, can be bad news. That’s because the U.S. economy’s growth has been sustained in recent years by manufactured goods paid for with citizens’ disposable income.
“The trade deficit widening is an indicator that the economy is in jeopardy right now, and when consumers see that, they get more cautious and cut back on discretionary spending,” Roger Kay, an analyst with Endpoint Technologies Associates, told eWEEK.
Corporate IT spending works in similar ways, Kay said. “If they believe we’re going into a dark period, anything they can delay, they will.”
However, not all implications of the increased trade deficit are negative for the tech sector. IT companies that diversify their international portfolios are better insulated from economic swings.
“IT has been the market leader in becoming more international. This doesn’t mean they won’t be affected by a recession or major economic upheaval. But the IT companies offering international services are probably in the best position, because the leveling out of the global economy stands to make international business less volatile,” Murray Beach, managing director of TM Capital, an investment and merchant banking firm, told eWEEK.
The trade deficit stands to create opportunities for enterprising technology companies that make it their mission to devise energy alternatives to crude oil, he said.
“Energy is no longer a cheap commodity, but the value of energy technology is going to get higher and higher in the long run. To the extent that we have a trade imbalance caused by oil, there is an opportunity for tech to thrive by creating energy solutions,” Beach said.
IT workers might see the widened trade deficit as a mixed bag. A devalued dollar means their income does not have the same buying power around the world, relatively speaking.
But a U.S. dollar that is less costly around the globe could help protect IT workers from labor offshoring to countries where their salaries can’t compete, Beach suggested.
“These factors will slow down offshoring there because the relative cost savings isn’t quite as big as it was before … It’s going to take several decades for it to fully level, but you can see the relative buying power of these countries [India and China] changing relatively quickly,” Beach said.