The Bureau of Economic Analysis reported today that the gross domestic product (GDP) fell at an annual rate of 0.7 percent in the first quarter of 2015. Much of the reason is our trade deficit.
The Bureau of Economic Analysis reported today that the gross domestic product (GDP) fell at an annual rate of 0.7 percent in the first quarter of 2015.
Our enormous, humongous trade deficit is literally draining our economy. The trade deficit is because we import things we used to make here and sell there, but we allowed companies to move the factories and jobs there in order to force wages down here. This makes a few plutocrats vastly wealthy but it is killing jobs, wages, factories and our middle class.
Trade Deficit Subtracted 2 Percent From Growth
The White House issued an analysis by Jason Furman, Chairman of the Council of Economic Advisers, explaining this was because of “harsh winter weather, tepid foreign demand, and consumers saving the windfall from lower oil prices.” The statement largely (and correctly) blamed “net exports.”
From the White House analysis: “A decline in the trade balance was another major contributor, partially reflecting the continued drag on U.S. exports from the slowdown in foreign growth. Indeed, net exports subtracted nearly 2 full percentage points from quarterly GDP growth.”
“Decline in the trade balance,” “tepid foreign demand” and “net exports” are other ways of saying our “trade” policies have caused an enormous, humongous trade deficit that sends away jobs, factories and our ability to maintain a middle class. A negative “net export” balance means we import more than we export, which means we have a trade deficit. We have had a trade deficit every year since the neoliberal “free trade” and “free market” ideology ascended in the late 1970s. But you won’t find the words “import” or “trade deficit” anywhere in the statement.
Now that we know what “net exports” really means, here it is again: “net exports subtracted nearly 2 full percentage points from quarterly GDP growth.” The trade deficit subtracted almost 2 percentage points from the quarter’s growth.
Close Factories Here And Move Them There = Trade Deficit
We have a trade deficit because we make “trade” deals with countries that sell to us without buying from us and then we don’t do anything to fix it. A lot of this “trade” deficit is because companies here close factories in the U.S. that made goods to sell in our retail outlets and move them to countries with little democracy, resulting in low wages and few pollution regulations. They send the goods back here to sell in the same outlets. Our “trade” deals let them do this with no cost or penalty. The executives and investors then pocket the difference in wages and cost of controlling pollution for themselves. This is why the plutocrat class that now controls our government supports these so-called “trade” deals. (It’s also why these “trade” deals have to be kept secret until Congress preapproves them with Fast Track.)
The Wall Street Journal’s At A Glance blog explains how the trade deficit cut into growth:
Trade was the biggest drag on top-line GDP figures in the opening months of the year. U.S. exports of goods fell by the most since the first quarter of 2009–the midst of the recession–while overall imports climbed. The widening deficit subtracted 1.9 percentage points from economic growth. A stronger dollar has tamped down overseas demand for U.S.-made goods while making foreign products cheaper to import. Meanwhile, congestion at West Coast ports constrained trade earlier in the year.
In “Yes, Trade Deficits Do Indeed Matter for Jobs,” Josh Bivens explains (in economese) at the Economic Policy Institute how the trade deficit is creating jobs, but not here – especially in manufacturing. He blames the trade deficit largely on currency manipulation by our so-called “trading partners”:
Trade deficits occurring when the U.S. economy is stuck below full employment and at the zero lower bound (ZLB) on short-term interest rates are a drag on economic growth and overall employment, period. And this describes the U.S. economy today, so a reduction in the trade deficit in the next couple of years spurred by a reversal of trading partners’ currency management would boost growth and jobs.
[. . .] if the trade deficit was reduced in coming years by ending widespread currency management by our trading partners, the United States would see a pick-up in output and employment growth.
[. . .] Yes, the relationship between trade deficits and jobs can be nuanced, but it’s really not that hard. In today’s U.S. economy, trade deficit reductions engineered by ending currency management would boost U.S. output and employment, and trade deficit reductions will (all else equal) always and everywhere boost manufacturing employment.
This Is The Result Of Intentional Policy Choices
From the recent post, “Enormous, Humongous March Trade Deficit Creating Jobs Elsewhere“:
This didn’t just suddenly happen. Globalization is not some kind of inevitable natural process of history that has caught up with us. This was and is the result of intentional policy choices, designed to force deindustrialization, break unions, drive down wages and benefits and increase inequality as that pay differential is pocketed by a few. This is the result of the “free market, free trade” ideology that rose up in the late 70s. Free trade policy was and is designed to give a few plutocrats and their giant corporations — “the 1 percent” — increased power over governments.
We have a trade deficit (negative “net exports”) because we import more than we export. A lot of this is imports of things that used to be made here by people who used to be paid here. Congress lets this go on because it makes a few plutocrats vastly wealthy – at the expense of the rest of us.
The trade deficit is eating our economy, closing factories, killing jobs, forcing wages down. But the White House isn’t allowed to say that because they want fast track trade authority to pass next week.
This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF. Sign up here for the CAF daily summary and/or for the Progress Breakfast.