Our enormous, humongous trade deficit is a measure of how many jobs, factories, companies and industries we are losing to our pro-Wall Street trade policies. A trade deficit drains our economy of wealth, jobs and future economic opportunity.
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.
Conservatives are supposedly all about markets. Markets should decide, not voters. But when it comes to the law of supply and demand for government debt, they go blind.
Greg Ip in the Wall Street Journal poses this surprising question: “Is Government Debt Too Low?”
The interest rate that rich countries with super-safe debt (in the case of the eurozone, that means Germany but not Spain) pay is astonishingly low: lower than the growth rate of nominal gross domestic product (that is, GDP before subtracting inflation). In the U.S., the Treasury yield has gone from roughly equal to growth in nominal GDP in 2005 to 3 percentage points lower today.
By Mr. [Brad] DeLong’s reckoning, this means those countries are borrowing too little. Bond yields and prices move in opposite directions, so low government bond yields equate to very valuable government bonds. Mr. DeLong asks, “Isn’t the point of the market economy to make things that are valuable?” Since the debt of rich countries is “very cheap to make… shouldn’t we be making more of it?”
Here is the argument. There is a huge demand for U.S. government bonds. There is so much demand that interest rates are exceptionally low. You almost have to pay the government to hold your money.
Remember the “law of supply and demand”? When there is a huge market demand for something, isn’t that supposed to mean that more of that thing should be produced?
Shouldn’t government be supplying more bonds? Saying that the government should be producing more government bonds is another way of saying the government should borrow more. This is what it means when the government “makes” bonds to sell.
If the government borrowed more, it could use the proceeds to maintain and modernize our infrastructure (which has to be done at some point, no?) We could build out a modern energy grid, high-speed rail across the country, double the number of community colleges, expand scientific and health research… And of course doing those things would end up employing millions, and making wages go up.
And if everyone had the job they wanted and wages went up, wouldn’t that boost market demand, which would trigger business investment?
And if we did all of those things – high-speed rail, smart energy grid, modern infrastructure, expanded scientific research, expanded educational opportunity, wouldn’t it mean that our economy was positioned to prosper, and everyone’s lives would be better?
And wouldn’t a revitalized private economy mean that people didn’t need to park their money in government bonds, so the supply wouldn’t have to go up any more to meet demand? And wouldn’t all the tax revenue from that revitalized private economy and full employment pay off those bonds over time?
But no, we can’t maintain, never mind modernize our infrastructure. We can’t expand educational opportunity. We can’t increase scientific and heath research. We can’t do any of those things. Because government spending. We have to cut back, cut back, cut back.
Conservatives say they are about the belief that markets are better than government (and, by implication, better than democracy). But when it comes down to it, they really are about one and only one thing: They hate government and want to strangle it, period – no matter the cost to our economy and our people.
Trade is great. We all trade. A lot of us trade labor for money that buys other things. A farmer trades corn for money that buys other things, and so on. No one is “against trade.”
But is anything called “trade” always good for all involved? Imagine you’re a farmer and you make a deal to trade corn and wheat to get money for a new tractor. So the farmer orders a new tractor, but the “trade partner” never buys any corn or wheat. After a while the “trade partner” shows up with a big bill, saying the farmer owes money for the tractor. And then the farmer finds out that the “trade partner” plans to use the proceeds from the sale of the tractor to grow their own corn.
In modern terms, we would say that the farmer was “running a trade deficit.” How much damage do you think that “trade deficit” is doing to that farmer, and the farmer’s ability to make a living in the future? How long do you think that farmer would let that “trade agreement” continue?
Alongside Friday’s good employment data, there is a brouhaha on the Internets over claims that the government’s employment numbers are a “big lie.” Jim Clifton, Chairman and CEO of the Gallup polling company penned “The Big Lie: 5.6% Unemployment,” claiming that “the media” is “cheer-leading” and the White House is “scor[ing] political points” over phony numbers that the government makes up to make things look better than they are.
In fact, the “top line” unemployment number – now 5.7 percent, representing 9 million people, does not factor in people who have given up looking, 6.8 million part-time workers who want to work full-time, 2.2 million “marginally attached” people, people who are grossly underpaid, etc. But everyone knows that, and the government reports that. The “official” number has a specific definition, the “U-6 “alternative measure of labor under-utilization” reports the more accurate 13.5 percent number. So somewhere between 15 and 20 million Americans count as un- or underemployed. But even that doesn’t count those who have given up. It’s still bad out there, but the government’s figures are not being manipulated.
Intentionally High Unemployment
I want to suggest that this high un- and underemployment is intentional. Here is why. Two things that the government could easily do right now would pretty much get rid of unemployment. But our government is blocked from doing those things by extremely wealthy people, who benefit from the low wages, and a desperate and “cowering” reserve army of unemployed status quo.
First, balancing the trade deficit would by itself bring back more than 5 million jobs. This is based only on the 3.1 million lost to the China trade deficit, 1 million lost to NAFTA and 900,000 lost to the Japan trade deficit. We also have trade deficits with Germany, South Korea, and others.
A way to visualize this is to imagine the effect on our economy of $500 billion of new orders coming in to businesses that make and do things inside the U.S. Then another $500 billion next year and every year after that. Our annual trade deficit is $500 billion. Fixing that means $500 billion of new business here, now, and continuing every year from now on. What you are visualizing is the damage this trade regime has done to us since Wall Street and the right’s “free trade” ideology took over.
Second, we have deferred maintaining our infrastructure since the Reagan era started the cycle of tax cuts and spending cutbacks. To bring the country’s infrastructure up to standards (never mind modernizing) we would need to spend $360 billion each year for 10 years, according to the American Society of Civil Engineers’ Infrastructure Report Card. If you conservatively estimate that each $1 billion spent on infrastructure creates 30,000 jobs, $350 billion translates to 350×30,000 = 10.5 million jobs.
So that’s conservatively 15.5 million jobs if we just go back to doing what the country did before the Reagan era. (This gives you a hint at the damage Reagan’s “trickle down” economics, and “free trade” market ideology have done. Look around. The extreme inequality that resulted tells you why it was done.)
Balance trade and fix up our aging infrastructure means at least 15.5 million jobs. (Think about what that would mean for wages, too.)
But That’s Just Catch-Up
But those things are just playing catch-up. It comes close to giving jobs to the unemployed, part-time for economic reasons and “marginally attached” workers. It doesn’t even start to dig into the people who have given up and left the labor market.
We got here by cutting taxes for the rich, gutting government, deferring maintenance, a and letting a few billionaires harvest our public wealth through privatization, etc. We’ll get out of it by fixing the trade deficit, repairing our infrastructure, undoing policy mistakes that have continued since the Reagan era, and ending “trickle down” tax cuts.
How do we take this a step further? The following things would employ tons of people and bring a long-term economic return far above any “cost.”
First, retrofit buildings and homes to be energy-efficient. Start with the basics: plug leaks and drafts, paint roofs white. These simple things could employ tons of people who we call “low skilled.” Take it a step further, and install energy-efficient windows, insulation, modern heating and cooling systems, solar on the roofs, etc. — all made in America, of course — and we will employ millions more. The energy payoff would be enormous, and we would go into the future with a much more efficient economy.
Next, engage in 21st century infrastructure projects like high-speed rail across the country and into Canada and Mexico — just like China is already doing. (See: “New Silk Road.“) We’ll create jobs, and end up with a massively more efficient, competitive economy. Then, modernize our power grid and install wind turbines across the plains states. Again, we end up with a massively more efficient, competitive economy. Requiring American-made supplies boosts the return to our economy.
What about building out national, high-speed, fiber internet? Imagine the innovation that would result.
There is so much we could do to first bring about full employment, and then move our economy into the 21st century. But we are held back by this weird Reagan/Wall Street/conservative ideology that tells us not to believe that We the People deserve a government that spends to make our lives better. That spending boosts us up now, makes our lives better, and more than pays for itself later. But we are kept from dreaming and doing because that return on our investment would go to us, instead of into the pockets of a few billionaires.
Rep. Alan Grayson (D-FL) is trying to get people talking about the trade deficit and the harm it is doing our wages, our jobs and our potential for mutual prosperity. He’s right to do this.
Last week Grayson spoke at a press conference with several other House Democrats and representatives from a broad coalition of organizations, expressing opposition to “Fast Track” Trade Promotion Authority. Fast Track is a weird process whereby Congress essentially approves of trade deals before even reading them. I wrote about this press conference in “House Members, Activist Leaders Form United Front Against Trade Scheme.”
Now Grayson is emailing his short talk out to his list. This is Grayson’s letter, which repeats what he said at the press conference:
Trade is a simple concept. You sell me yours, and I’ll sell you mine.
That’s not what’s happening.
What’s happening is that day after day, month after month, and year after year, Americans are buying goods and services manufactured by foreigners, and those foreigners are not buying goods and services manufactured by Americans. We are creating millions — no — tens of millions of jobs in other countries with our purchasing power, and we are losing tens of millions of jobs in our country, because foreigners are not buying our goods and services.
What are they doing? They’re buying our assets.
So we lose twice. We lose the jobs, and we are driven deeper and deeper into national debt – and, ultimately, national bankruptcy. That is the end game.
This is not free trade; it’s fake trade. We have fake trade.
That’s why before NAFTA was enacted and went into effect, this country never had a trade deficit as much as $140 billion a year, while every single year since then — for 20 years now — we have had a trade deficit of over $140 billion a year.
We have had a[n average annual] trade deficit of half a billion dollars now, for the past 14 years.
Look back all across history. Look all across Planet Earth. You will see that the 14 largest trade deficits in the history of mankind are – all [of them] — the American trade deficits for the last 14 years.
(I cannot rule out the possibility that somewhere on Alpha Centauri there might be a country that has a larger trade deficit. But here on Planet Earth, no.)
Listen, we are in a deep, deep hole, thanks to fake trade. Thanks to fake trade, right now, 1/7th of all the assets in this country — every business, every plot of land, every car – 1/7th of all the assets in the country are now owned by foreigners. And ultimately, if we keep going the way we’re going, they all will be.
That’s why we have the most unequal distribution of income [among all industrial nations] in our country, [and] the most unequal distribution of wealth in our history.
We’re in a deep, deep hole. And there’s a simple rule about holes: When you’re in a hole, stop digging. Stop digging!
So I’m calling upon our leaders. I’m calling upon the American people. Let’s stop digging.
Let’s not only have a trade policy. For once, let’s also have a trade deficit policy.
Let’s deal with the reality that has robbed the American Middle Class now for decades. Let’s address it, and let’s defeat it. That’s what I’m calling [for], right now.
Let’s stop digging deeper. Let’s raise ourselves up, let’s climb out of this hole, and rebuild the American Middle Class. Thank you very much.
Rep. Alan Grayson
Grayson’s email includes this chart showing the history of how our enormous, humongous trade deficit has grown and grown:
This is a big deal, because Grayson reaches a lot of people, and information spreads. So, maybe Grayson’s efforts will help drive awareness of the the trade deficit problem.
What Is The Trade Deficit?
The trade deficit is a direct measure of how much more our country buys from other countries than it sells to other countries. It also directly measures dollars and jobs literally drained from our economy. The trade deficit — contrasted with the budget deficit which we largely owe each other inside the country — really is like a family or business budget and we are spending more than we are taking in. In fact, we have been spending more than we are taking in for a long time.
Last month our trade deficit was $39 billion. That is $39 billion worth of business that went to non-US factories and other providers representing $39 billion worth of jobs and store purchases and the jobs and taxable revenue all of that represents. And that was in just one month.
Meanwhile China reported that their trade surplus has increased by almost 50%. “China 2014 trade surplus rockets to record high”:
China’s trade surplus soared by almost half last year to a record $382 billion, the government announced Tuesday…
Exports increased 6.1 percent to $2.34 trillion in 2014, while imports rose 0.4 percent to $1.96 trillion, the General Administration of Customs said on its website.
That translated into a trade surplus of $382.46 billion, the highest ever and a 47.2 percent increase on 2013.
That trade surplus represents a direct transfer of $382 billion of wealth into China from other countries — largely our own — while our trade deficit represents a direct transfer of wealth out of our own country, mostly to China.
Grayson’s little chart shows how long our trade deficit has been draining jobs, factories, and prosperity from our country. Nothing like this has ever occurred before in human history. If you look at the effect on the country you can trade the years of factories closings and community devastation in much of the country to the lines on this chart. You can trace the “hollowing out’ of America’s middle class by following the lines on this chart.
Budget Deficit Or Trade Deficit — Which Matters More?
You have heard a LOT about the budget deficit over the years. Conservatives and Wall Street have put a lot into making people scared about the budget deficit. This scare machine has been effective and as a result most people don’t even know that the budget deficit is way down from where Bush left it. (“By 73 percent to 21 percent, the public says the federal budget deficit has gotten bigger during the Obama presidency.”)
The reason conservatives and Wall Street are investing so much in budget-deficit propaganda is that if people are fearful about the budget deficit they demand certain policies that are, to say the least, a lot more beneficial to conservatives and Wall Street than to regular, working people. These include allowing cuts to the federal budget (and its oversight of and push-back against the giant corporations) that would be unthinkable without budget deficit fear stampeding the public. (The budget deficit was caused intentionally to force these results.)
However, if people come to understand and worry about the very real trade deficit they will demand policies that are very good for regular, working people as well as for “Main Street” businesses that make or do things in America. Policies that balance trade would increase jobs and wages, general prosperity and tax revenue.
These policies to help balance trade include outlawing currency manipulation which makes foreign-made goods less expensive relative to American-made goods, enforcing existing trade rules and finally renegotiating the trade deals that have caused our massive trade deficits (China, in particular).
Campaign for America’s Future’s 2010 Reagan Revolution Home To Roost series, especially the post Reagan Revolution Home To Roost — In Charts described the beginning of the great decoupling of the American economy from the middle class.
Conservative policies transformed the United States from the largest creditor nation to the largest debtor nation in just a few years, and it has only gotten worse since then.
Europe’s economic depression has now lasted longer than the Great Depression of the 1930s. Meanwhile, America’s “Great Recession” also drags on thanks to cutbacks in government spending since the stimulus.
Europe’s leaders somehow were convinced that austerity – “deficit reduction” through cutbacks in government – would somehow lead them out of their economic doldrums. They believed that taking money out of the economy would help the economy. The result has been terrible. The Washington Post’s Wonkblog calls Europe’s austerity-lengthened depression “one of the biggest catastrophes in economic history.”
To top it off, Europe’s governments are learning that cutting back on spending not only worsens the economic picture, causing terrible unemployment, poverty and human misery, but the worsened economic picture means less revenue coming in, thereby increasing deficits instead of lowering deficits. In other words, austerity cutbacks to fight deficits have instead made deficits worse and hurt people.
Problem: Your right-wing brother-in-law is plugged into the FOX-Limbaugh lie machine, and keeps sending you emails about “Obama spending” and “Obama deficits” and how the “stimulus” just made things worse.
Solution: Here are three “reality-based” charts to send to him. These charts show what actually happened.
Government spending increased dramatically under President Bush. It has not increased much under President Obama. This is just a fact.
Note that this chart starts with Clinton’s last budget year for comparison.
This video helps you understand that the country is not “broke” but has PLENTY of money to hire people, fix infrastructure, etc., just like how we had enough money for two wars and then trillions to bail out the banks. PS It’s called “Modern Monetary Theory.”
From her website: Stephanie Kelton, Ph.D. is Associate Professor and Chair of the Department of Economics at the University of Missouri-Kansas City. She is also Editor-in-Chief of the top-ranked blog New Economic Perspectives and a member of the TopWonks network of the nation’s best thinkers. Her book, The State, The Market and The Euro (2001) predicted the debt crisis in the Eurozone, and her subsequent work correctly predicted that: (1) Quantitative Easing (QE) wouldn’t lead to high inflation; (2) government deficits wouldn’t cause a spike in U.S. interest rates; (3) the S&P downgrade wouldn’t cause investors to flee Treasuries; (4) the U.S. would not experience a European-style debt crisis.
If you want more, Stephanie Kelton has also participated in a number of Virtually Speaking episodes.
You hear often that we “live in a global world now.” You hear that “globalization” means we have to drop our wages and standards to match those in impoverished, Third-World countries. You hear that the “cost” of controlling pollution makes us uncompetitive in the world. Etc. Etc. Etc. It’s inevitable – a force of nature – so don’t fight it, they say. This is endlessly repeated as if we weren’t in a “global” world when the first camel crossed a border or the first sailing ship crossed a sea. But since that first camel countries have enacted policies to make things better for their people.
Sunday’s New York Times published an op-ed, “The Myth of Industrial Rebound,” by Steven Rattner, one more wealthy Wall Street executive who revolved through the door from being an Obama administration official after he revolved through the door from being a Wall Street executive. In his op-ed Rattner accurately describes many of our economy’s problems but concludes that we should let these things just happen to us because, “In a flattened world, there will always be another China.”
Rattner points out that many of the new manufacturing jobs are low-wage. “This disturbing trend is particularly pronounced in the automobile industry. When Volkswagen opened a plant in Chattanooga … the beginning wage for assembly line workers was $14.50 per hour, about half of what traditional, unionized workers employed by General Motors or Ford received.” Meanwhile, “in Germany, the average autoworker earns $67 per hour. … Volkswagen has moved production from a high-wage country (Germany) to a low-wage country (the United States).”
Rattner is correct that falling wages are slowing economic recovery. “These dispiriting wage trends are a central reason for the slow economic recovery; without sustained income growth, consumers can’t spend.”