The following article is the fifth in series written by Emeritus Associate Professor W. Raymond Mills.

1. The U.S. government does not possess the financial resources to compete with Germany or China in subsidizing exports.

2. The U.S. prefers to rely upon private enterprise to create the goods and services produced by the nation. We do not want the Federal government to pick winners and losers among private firms.

What we must learn from other nations is that the national government has an important role to play in creating the conditions under which foreign trade will benefit the nation.

The great natural advantage possessed by the U.S. is the attractiveness of its domestic market. The U.S. has the wealth to purchase whatever is for sale. No other nation has a domestic market near as attractive as the U.S. That market has attracted other nations to adjust their production to what will sell. Of course, the historic desire of the U.S. leadership to open their country to foreign trade encouraged selling in this country.

The U.S. needs to use its ability to limit access to its market so that other nations will be willing to adjust their trade with the U.S. to a level that can be supported by American exports.

While equal trade is a good conceptual, clean-cut goal, the U.S. should not aim for equal trade with all nations in goods (table 1 is limited to goods or merchandise trade). The U.S. has been able to sustain a surplus in services for years.

A good practical goal for the U.S. is to seek to reduce the goods trade deficit to 23 percent of U.S. goods imports. That was the level achieved in the period 1994 – 1997. In that four year period, the combination of a low trade deficit and low value of the dollar enabled the U.S. to increase employment in the manufacturing sector of the economy. The manufacturing sector was also able to provide 30 percent of the corporate profits earned by all domestic industries during those years. These numbers may not be achievable in the short run but they provide a good target.

The recent history of the size of the U.S. goods trade deficit relative to goods imports provides hope that the 23 percent goal is achievable. The goods trade deficit as a share of goods imports has been declining recently (without U.S. government interventions) due to reductions in the value of the dollar and the financial crisis that hit in 2008. The goods trade deficit as a share of goods imports were: 47 percent in 2005; 42 percent in 2007 and 34 percent in the first 9 months of 2009. Currently, the U.S. is only 11 percentage points from the goal of 23 percent of imports not paid for with exports. (The expectation is that the U.S. trade deficit will increase, gradually, after 2009, when the U.S. consumer ceases reducing consumer debt, if the Federal government makes no attempt to use its powers to reduce the trade deficit).

Click here to read the first article in this series.

Click here to read the second article in this series.

Click here to read the third article in this series.

Click here to read the fourth article in this series.

W. Raymond Mills is an Emeritus Associate Professor of City and Regional Planning at The Ohio State University. Mills’ Ph.D was in Sociology from the U. of Michigan (in 1958), his specialty was forecasting economic and population growth in metropolitan areas in the U.S. He can be contacted via email: wrmills@wideopenwest.com

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