It is often said that the U.S. needs to reduce its persistent current account deficit as part of a larger global rebalancing, with surplus countries like Germany and China doing their part by increasing consumption. We tend to interpret this as “the U.S. needs to export more,” but of course it could just as easily mean “the U.S. needs to import less.” The problem is that importing less good stuff is a depressing prospect. Importing less oil, on the other hand, seems harmless enough. Glenn Hubbard (an advisor to Republican presidential candidate Mitt Romney) and Peter Navarro wrote extensively on this subject in their book Seeds of Destruction, and they offered a controversial proposal to curb oil imports.
Arpit Gupta offers a different way of looking at the impact of oil imports and oil shocks:
A large part of this last recession was attributable to high gas prices, while a persistent oil deficit worsens the current account deficit. In classical theory, that isn’t so worrisome by itself, as a current account deficit will eventually be balanced out by higher future exports or capital inflows.
But high capital inflows can be very dangerous. In general, they tend to be associated with asset price appreciation, and a skew in domestic prices away from (increasingly uncompetitive) tradable goods and towards durable, non-tradable goods (like housing and real estate). This has been a contributing factor behind the Asian crisis, and may have been a large factor behind the most recent crisis.
After discussing the implications for monetary policy, Arpit ends on the following note:
[E]ven without trying out capital controls, simply lowering the level of imports of oil would have an enormous effect on current account deficit, and so on the degree of net capital inflows that result. As Calculated Risk always points out, America would be much closer to trade balance excluding the impact of oil.
America’s dependence on oil is bad. It’s bad for households and it’s bad for the economy. It’s not crazy to think about ways to move away from oil, both to avoid the impact of transitory shocks, as well as the costs of long-term dependence.
Moreover, the IEA anticipates that U.S. net petroleum imports will continue to decline, as Lananh Nguyen reports:
U.S. oil demand is forecast to drop to 14.5 million barrels a day in 2035 from 18 million last year, the IEA said in its annual World Energy Outlook report.
This reflects a combination of increased fuel efficiency and domestic production, the latter of which is a somewhat polarizing domestic political issue yet that might have significant economic benefits that extend beyond the (presumably modest) short-term creation of “brown jobs.”