Trade Deficit – One Root Of Many Problems

You buy things till your wallet is empty. So you raid the savings account to buy more stuff. Then you get a loan, and buy more stuff. Another loan, another, you keep buying stuff… Finally you’re selling off the tools you had used to make a living. That’s where the country is now because of the huge imbalance in our trade relationships. We buy more from them than they buy from us and we have let this go on and on and on. This is the deficit we should be worried about.

The Root

Pick a national problem, and the odds are that our trade imbalance is aggravating it. Our trade deficits literally suck money out of the country. When looking up the numbers I had to double check, our annual trade deficits are so huge. In the chart below that first line under the dates represents $100 billion. Look at what happened in the late 90s, when we opened the China flodgates. (Click to enlarge):

In the 70’s the trade balance dipped below zero because of oil, and the country responded with conservation and the beginning of the search for alternatives — until Reagan. To make matters worse, Reagan preached “free trade” — as in use cheap foreign labor to break American unions. (But Reagan also enforced rules against “dumping” and other trade violations.) The real break in our balance of trade clearly begins around the time that NAFTA and the World Trade Organization went into effect, and then went absolutely nuts after China was brought in. Between 2001 and 2009 we lost 1/3 of all of our manufacturing jobs, more than 50,000 factories, and entire industries. We drained trillions of dollars out of our economy.

Causes

Energy. The trade imbalance started with OPEC and the oil price shocks in 1970s, and oil imports since then. This is a huge problem but the beneficiaries of this trade imbalance fight to keep things the way they are. (By the way, next time you hear someone of FOX running down our country’s green energy efforts, knocking the Chevy Volt or denying climate change, think abougt this: Fox’s second-largest shareholder is a billionaire Saudi oil prince. Also, FYI, Koch brothers == oil.)
“Asymmetries.” One-sided trade relationships are now draining money from our country at a dramatic rate. We are much more open to imports than many of our “trading partners” are. We buy from them, they don’t buy from us — and we just let this continue year after year.
“Strong” dollar policies, combined with currency manipulation by others. A strong dollar is great for Wall Street, but is terrible for manufacturers and producers. When the dollar is “strong” it means that goods made here cost more than goods made elsewhere. The dollar went way up in the early 1980s because of the borrowing following the Reagan tax cuts for the rich and the trade deficit went up along with it. Dollars had to be purchased to buy our bonds, creating a “demand” for them, which increased their “price,” contributing significantly to the then-record U.S. trade deficits. Meanwhile, we let countries like China manipulate their currencies to make them “weak,” which means goods made there cost must less in world markets.
Trade cheating. Many countries violate trade rules (like manipulating currency), which brings them a competitive advantage in world markets. We don’t call them on it for various reasons, largely because powerful interest groups benefit from the cheating. When goods from elsewhere cost less than they should it undermines our own manufacturers and producers, but the lower prices enrich distributors, retailers, and others.

The Trap

Here is the trap of our one-sided trade agreements: these “free-trade” agreements increase exports. The reason this is a trap and a problem is that they increase imports more. So, on the one hand the agreements create and enrich interest groups that push for continuation and expansion of the agreements, while on the other hand they increase trade deficits, which drain our economy.
Example: We opened up trade with China. China lets their imports grow, so we have some appearance of increasing sales to China, but they keep barriers while manipulating currency and subsidizing their companies, and their exports to us grow faster than their imports from us, which increases the imbalance. They can steadily reduce their import barriers and let their currency rise slowly, giving the appearance of moving toward open trade and providing what appear to be incentives to keep the relationship going, but by also increasing their exports they continue to drain us.

The Answer: Balance

We must balance our country’s trade. Of course, to do that we must understand ourselves as a country again. Our competitors certainly do.

We’re A Country. Deal With It.
Here’s the important thing to understand, even if you think the idea of “countries” is out of date, and don’t think of the United States as a country is important anymore: Others see themselves as countries and they organize their countries to win as countries. And you don’t live in those countries. They see us – this geographic region we live in — as a country, even if we do not, and they plan their efforts accordingly. They attack us as a country and you happen to live in the geographic region called a country that they are attacking. So as they seize the jobs and factories and industries from our country all of us who happen to live within the geographic borders that we refuse to call a country lose out economically, whether we believe we are part of this country or not. This means we have to respond as a country regardless of whether our ideology says we shouldn’t. We are under economic attack as a country, so national government still matters as the only force capable of organizing a national response.

Our government must say that the amount coming in must match the amount going out. Period.
(Note, The Causes of the U.S. Trade Deficit, Robert A. Blecker, Ph.D., August 19, 1999 is a good read.)
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This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.
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President Obama’s Upcoming “Section 421 Tire Case” Trade Enforcement Decision

This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.
When China was accepted into the World Trade Organization, they agreed that if we experienced import surges of Chinese goods that caused “market disruption,” we would be allowed to limit the import of those goods. The particular section of the agreement is called “Section 421.”
When the U.S. International Trade Commission (ITC) determines that the level of imports from China cause or threaten to cause market disruption to American producers of competitive products, it proposes a remedy that can include quotas or other relief. The President of the United States then makes a decision whether to enforce that recommendation.
President Bush repeatedly (seven times) refused to enforce Section 421 even when our own ITC found that American companies, factories and jobs were being lost. Bush claimed at the time that the destructive effects of dramatic, sudden increases in Chinese imports that Section 421 was meant to mitigate were actually good for the U.S. economy. Bush’s policy was the opposite of “protectionism” — it actually favored China’s companies over our own! (I think we’ve seen how that has worked out.)
Very soon we will have an opportunity to see where President Obama comes down on this issue. The ITC has decided by a 4-2 vote that the U.S. tire industry has been harmed by a large increase in imports. They have recommended increasing tariffs starting at 55%, falling to 35% over three years. The Office of the U.S. Trade Representative now has to give its recommendation on this to the White House by Sept. 2.
President Obama has until Sept. 17 to make a decision. This is just one week before the upcoming G-20 summit in Pittsburgh. There is considerable pressure on him to to signal that the US will restore trade balance and help manufacturing in America, by following the rules of the WTO that China agreed to.
According to the United Steel Workers, which represents workers in the tire industry, thousands of jobs are being lost and tire plans in the US are shutting down. Also at this page is a chart from the ITC showing that the benefits of enforcing remedies “are two-and-a-half times greater than the costs” to consumers.
Mike Elk wrote the other day at the Campaign for America’s Future blog,

President Obama stands at a crossroads in the fight to rebuild the American economy.
President Obama has made a commitment in the past to uphold previously signed trade agreements. China, however, is violating these agreements by flooding the market with a massive 300 percent increase in tire imports in an attempt to wipe out American tire manufacturers. In 2004, China sent 14 million tires to the U.S. valued at $453 million. By last year, that had increased to 46 million tires valued at $1.7 billion.

Mike also points out,

Chinese importers, in conjunction with the Chinese Chamber of Commerce, have ironically formed a lobbying front group ironically named American Coalition for Free Trade in Tires. The coalition is run by Jochum, Shore & Trossevin, a Washington D.C. lobby firm run by former Bush trade officials who are cashing in on their years of U.S. government service to advise foreign competitors.

Jim Wansley, former USW Goodyear local president, testified about the impact of the closing of the Goodyear plant in Tyler, Texas where he had worked for 39 1/2 years:

The closure put hundreds of workers, many of whom had given decades of service to the plant, out of work. The closure was devastating to the workers and their families, but it is also being felt throughout the community of Tyler, Texas. Tyler has a population of about 100,000. Like many small and medium-sized towns that depend on manufacturing for middle class jobs, the loss of these jobs has taken its toll. The Goodyear plant directly benefitted the local economy by supporting local small businesses who served as its suppliers and service providers.
The plant also provided enormous indirect benefits. Jobs at the plant paid good wages and benefits, enabling workers to lead decent middle class lives, buy homes, send their kids to college, and save for retirement. These are the kind of jobs that support an entire community as families pay their doctor bills, buy new cars, and contribute to local charities. The plant and its workers were also an important source of tax revenue for the city, the county, and the state.
. . . The victims will not only be the workers and their families, but the suppliers, service providers, local businesses, and entire communities that depend on the industry. In sum, there is an enormous cost to doing nothing. If more plants like Tyler close, we can expect to suffer total additional losses of almost a billion dollars per plant, per year.

On the other hand, The Washington Post points out,

If Obama backs the tariff, he risks upsetting the Chinese at a time when the United States needs China to keep buying U.S. government debt to fund stimulus efforts.

This is not just an intellectual discussion. This, like all trade issues, is about American workers losing their livelihoods and communities losing their economic base. At the same time the policies of the Bush administration — borrowing trillions of dollars from them while allowing our manufacturing base to deteriorate — have placed China in a very strong position of economic advantage which gives them the power to demand concessions.
For more information:
USW fact sheets, background, other info related to tire trade case against China
Statements by Senators, other lawmakers supportive of USW unfair trade case claim against Chinese tires
More Members of Congress, Senate praise ITC ruling in tire trade case
A post at TradeReform.org: Trade Community Awaits President’s Decision on China Tire Safeguard
Testimony of Senator Sherrod Brown before the U.S. ITC on the tire issue.
Gilbert B. Kaplan, Former Deputy Assistant and Acting Assistant Secretary of the U. S. Department of Commerce, writing at Huffington Post on this and other trade issues with China.
ManufactureThis.org: Making the Case for Relief from Chinese Tire Imports
One group in opposition to this ruling is American tire distributors, who benefit from the low prices of Chinese imports. (Note this is published by the Chinese Xinhua News Agency.)