How the Trade Deficit Affects You

tradedeficit3

Trade Deficit: The means through which foreign countries are able to amass the funds to buy out American companies and industries. Trade deficits are just like other debts in many respects. They must be repaid. When our country buys more than it sells from other countries, these other countries accept our dollars. These dollars must eventually return to the U.S. and be exchanged for something of value. Since we are producing less and less, in all likelihood, the trillions of dollars will come back to buy our assets and wealth producing companies. This has resulted in many of our core industries now being controlled and managed for the benefit of foreign companies and countries.

These loans by foreign governments have given them leverage over our decisions, forcing us to enter into agreements with them to allow them to control our key assets (technology, ports, natural resources, etc.). In fact, these loans place us in a disadvantageous position in all our negotiations abroad. Witness our inability to offset China’s currency manipulation that is making it nearly impossible for American exporters to compete.

“Free Looting”

What is responsible for this rash of imports? Policy decisions including the WTO, NAFTA, CAFTA, KORUS and other so-called one-way “free trade” agreements have eliminated laws regulating what other countries can ship into this country.

Today we have laws that prevent people from breaking into a store and stealing goods. If such laws were abolished, thieves would be getting a great deal until the store-owners were forced out of business. Then no one would have a job or any goods. “Free trade” operates with similar effect.

The “thieves” produce goods at ultra-low wages in protected home markets in countries that have government subsidies and do not have environmental or labor laws like we do. These goods, produced by workers who toil for wages like $1 per hour, are sold into the U.S., which has a $12 per hour wage rate. Eventually, the “store owners” in this country are robbed of their profits and their incentive to continue manufacturing here. They must either produce in other countries like their competitors or go out of business. There is nothing these “store owners” can do to be competitive enough on their own.

In previous years, this country operated with measures to protect our manufacturers from lower-wage competing countries, who have always existed. As a country, we decided it was critically important to make sure we protected our ability to produce what we consume, what we needed to defend ourselves, and the means to employ ourselves.

As times changed, other countries lobbied hard for the U.S. to reduce this protection and lured us in with their cheap goods. Now that we have taken the bait and in fact lost our ability to produce what we consume, we find ourselves collectively not unlike the position of the thieves in our looting example after all of the stores have gone out of business. Yet we continue to open up more of these trade agreements with outrageous acclaim.

Unprecedented Vulnerability

The U.S. is incredibly vulnerable. Based on the trends described above, we no longer produce what we need for everyday consumption. Between our government debt and consumer debt, we are borrowing $2.8 billion more each day from other countries. And this is just for “normal living conditions.”

If we were to engage in a major military conflict, from where would we supply our defenses? What would happen to our delicate balance if these other countries decided to reduce or stop this lending insanity? What would happen if another major shock like 9/11 occurred in our economy (or not if but when…)?

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