Exports Won’t Close Trade Gap with China
Since 2001—the year the U.S. entered the World Trade Organization (WTO)—our trade deficit with China has more than tripled. In that same time period, we have lost over 3 million manufacturing jobs; from 2001 to 2009, the U.S. lost 42,400 factories. This is not a coincidence. With cheap goods flooding our markets from overseas, demand for domestically manufactured items has dropped. Just as importantly, China’s emerging middle class seems more inclined to save than to spend money on American-made goods. The New York Times reports that the average Chinese worker saves 25 percent of their income; American workers save just 4 percent of theirs.
As with all of our free trade agreements, the American public was told that our free trade relationship with China would be beneficial, because increased exports would offset the losses from cheap imports coming into the country. China’s growing middle class was sold as a major market that could save American manufacturing. A decade later, this market has failed to develop, but America’s trade deficit with China is staggering. This is more evidence that we need to evaluate whether our trade agreements are truly beneficial to us or if they are blindly negotiated based on the idea that exports will save us.
We were told that as the Chinese earned money from manufacturing goods for export to America, their marketplace would begin to look more like our own. Chinese currency manipulation has been part of the problem in allowing U.S. manufacturers to succeed in China. By artificially devaluing their currency, the Chinese have been able to make American goods sold in China relatively more expensive. Meanwhile, their exports to the United States are essentially subsidized by the low value of the yuan. This, combined with the fact that the Chinese don’t appear to have the same voracious appetite for consumer goods that Americans do, has made the promises of increased exports ring hollow.
This trade imbalance has not been bad for all Americans; those who run multinational corporations that profit off of cheap foreign labor are still doing quite well. Those who hold stock in those companies can also cash in to some extent, but as middle class jobs continue to disappear, there will be less and less Americans who can even afford to own stocks. This will further divide America between the haves and the have-nots, and the only way to stop it is to rethink our free trade agreements.
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Karl: I’ve read and praised your articles before,
andthis is another very good one. But you don’t
have muchto say about imports, the other side of
the trade deficit issue. Yes, exports alone will
not cure ourtrade deficits now running at $700+
billion annually.The U.S.tates imports about $2.4 trillion in goods and services, including oil, it
causes about $250billion of the trade deficit.That leaves $500 billionof general goods and services
to be made up.
There’s only one way to make up the $500 billion shortfall – it’s to reduce imports by enacting
and enforcing a new U.S. law requiring our total
annual imports not exceed our exports. The plan
is based on a proposal by Warren Buffett 8 years
ago and got as far as draft legislation in Senate S.3899 “The Balanced Trade Restoration Act of 2006″
by then Senators Dorgan and Feingold. But it was
ignored by President Bush and so far by Mr. Obama.
The concept is fully authorized by WTO rules,as it’s aimed at restoring our balance of payments rather
than penalizing imports as tariffs do.It would bring $500 billion to the U.S. for production and jobs here.
I’ve raised this point many times at EIC,both in
in submitted articles and in comments. I’ve never
had a response from anyone at EIC. Perhaps you’d
careto reply now. I’d really appreciate that Karl!
K.N.Davis,Jr. Former U.S. Ass’t Secretary of Commerce
Mr. Davis,
People in general are reluctant to bring up problems they don’t have solutions for, so the need to reduce imports is rarely brought up. Anatole Kaletsky, author of the book Capitalism 4.0, published the article “We need a new capitalism to take on China” the Financial Times in February, 2010, which he states:
”The question that nobody wants to raise is whether the new model of capitalism that emerges to dominate the world will be a radically reformed version of the Western democratic system or some variant of the authoritarian state-led capitalism favoured in China, Russia and many other emerging economies.”
Dualistic (either/or) economists hold steadfastly to the ideology of their economic schools, will not even consider a new model for global trade that falls between their ideological extremes, like Buffett’s balanced trade model.
Virtually all the economists advising our policy makers embrace ideologies that have no successful track-record against authoritarian state-led capitalism. The authoritarians’ strategy is that trading partners will continue to steadfastly maintain their blind-trust in free trade and as a result be unwilling to take a market position against their state-led capitalism model. Buffett’s balanced trade model is just such a position, they should fear most.
Mr. Campbell:
I’m not sure what you’re telling us. Are you saying
that economists have something to legitimately fear
from the Buffet Plan or other proposals to reduce
the huge flow ofimports? If so, I disagree fully with that construct.
America has much to gain from enacting and enforcing
balanced trade, including enhanced national security. Even with reductions in imports required to balance
our trade with the rest of the world,we’d still be the
world’s biggest importer. That’s hardly protectionism
if that’s what you’re worried about. Best regards,
BalancedTrader1
Kenneth,
You mentioned “not penalizing imports”.
Why not?
Why not “penalize imports”?
Isn’t that the best way to reduce imports?
Won’t penalizing imports reduce imports, leaving more domestic demand available for domestic production?
And what’s wrong with Tariffs? They were used in this country with great success for 200 years. Why not now?
A better solution, in my opinion, is to completely withdraw from the WTO. Then we could set Tariffs as high as we want, on anything we want.
We could reduce imports greatly, and thus reclaim the domestic demand that is being filled by foreign imports.
As an honorably discharged Cold War veteran, I remember how we used to protect American invention and innovation and leverage it to benefit our economy. Reverse that equation and that’s where we are today.
Of course, businesses are dumping our innovation on China and other countries to get them to manufacture their products and of course our universities are packed like sardines with student spies from other countries preparing to embed themselves in our government and buisnesses and all of this has been going on since the end of the Cold War; however, did you really read those two articles?
They stole everything they didn’t already have in the largest theft of intellectual property in the history of the world!
If you had to put a price on what they took from us, it could total sexillions and China will put it to good use as they seek to make their economy, military, and culture the foremost in the world supplanting the United States… and we will have been instrumental to them being able to accomplish that.
Meanwhile, our politicians slept oblivious to what just happened worrying about how to protect music and film interests for Hollywood companies in awful legislation (e.g. SOPA/PIPA).
The results are already observable, the Chinese are building stealth bomber prototypes and planning a space station and they were a backwards military force during the Cold War. That’s all a result of simply taking ALL of our technology (across the board) away from us that we didn’t give them.
And U.S. educational organs teach every student at every level, from K-12th to the post-graduate Ph.D. research level, that our current paradigm of free trade is desirable for our economy and our national security.
It’s a complete delusional travesty.
http://www.businessweek.com/news/2011-12-22/china-based-hacking-of-760-companies-shows-cyber-cold-war.html
http://www.independent.co.uk/news/chinese-stole-all-nuclear-secrets-1096016.html