The problem is, we buy more goods than we sell, and
we borrow to make up the difference
"Now don't you worry your pretty little head about
that" always seems to be the retort of the economics
literati when the economically stupid start asking questions
about the U.S. trade deficit.
My head's neither pretty nor little, but I am stupid about
world finance, despite the heroic efforts of my 11th-grade
economics teacher. (Sorry, Miss Foster, I was only pretending
to pay attention when you were speaking.)
So, when it was reported Tuesday that the U.S. trade deficit
for 2006 reached a record $763.6 billion, I was a little
shaken. I do remember enough about economic theory to know
you make money by selling more goods than you buy. We're
not doing that very well.
December saw America's monthly trade deficit increase to
$61 billion from $58 billion in November. The Wall Street
Journal (no economics slackers there) says the 5.3 percent
increase was more than its experts had predicted. They blamed
high oil prices, mostly.
The record trade gap caused House Democrats to fire off
a letter to President Bush calling for new policies to end
the string of five straight years of record-setting trade
deficits. The letter's 15 signers said the trade deficits
were in part responsible for the loss of 3 million U.S.
manufacturing jobs.
They asked the president to present a comprehensive plan
to eliminate the largest trade deficits _ with China, the
European Union and Japan _ within 90 days.
China is a particular worry. Its entry into the World Trade
Organization in December 2001 was in some ways as important
as the tragic events three months earlier in its impact
on life in the United States. Of course, we didn't know
it at the time.
I don't remember anyone predicting that the People's Republic
would become America's favorite peddler when President Bill
Clinton was pushing for China's entry into the WTO in the
1990s.
China has achieved dominance in its trade relationship
with the United States by heavily subsidizing its manufacturers
and by undervaluing its monetary unit, the yuan, to keep
its exports inexpensive. We can't get enough of the cheap
Chinese-made products.
China does buy our goods, too. But I like the way Yvonne
Smith, a Port of Long Beach, Calif., spokeswoman explained
the difference on PBS Television's "Frontline":
"We export cotton, we import clothing. We export hides,
we bring in shoes. We export scrap metal, we bring back
machinery. We're exporting waste paper, we bring back cardboard
boxes with products inside," she said.
The House Democrats' letter asks President Bush to act
"aggressively" to stop currency manipulation by
China and Japan and to push for tougher enforcement of WTO
rules. The Bush administration did recently file a complaint
against China with the WTO, but it did not address valuation
of the yuan. Maybe we don't want to upset China too much,
given its importance to us in other matters, including efforts
to calm North Korea.
But there's something else, says the University of Maryland's
Peter Morici, a former chief economist at the U.S. International
Trade Commission. Multinational corporations such as General
Electric, Caterpillar and General Motors have profited by
investing in China's markets and have lobbied against trade
sanctions on China, he says.
Morici also points out that China isn't the only culprit
in the trade deficit story. The aforementioned price of
oil requires long-term solutions that decrease our use of
fossil fuels. And there's our moribund auto industry, beset
by personnel costs and poor management that add thousands
to the price tag of American cars.
So we've got another huge trade deficit. But not to worry,
some experts say. The dollar will eventually fall in value
and make our exports cheaper in foreign markets. OK, but
what about the time between now and then?
We're buying more than we're selling, and borrowing to
make up the difference. Morici says the debt service on
the $6 trillion that this nation has borrowed to finance
trade deficits is $300 billion a year. That's money that
could be going to a number of purposes, including research
and development to reduce our dependence on foreign oil.
Worried about the increasing trade deficits? Call me stupid,
but yes, I am.
