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U.S. trade deficit - nothing to worry about

J

JohnnyReb

Banned
Charles McMillion of MGB Information Services released the final figures for the U.S. merchandise trade deficit for 2001. Good news: It diminished by 6 percent. Bad news: It was the second largest ever. America imported $427 billion more in goods than we exported to all the other 190 nations on earth. In manufactured goods alone, our trade deficit was $309 billion, which translates into 6 million lost manufacturing jobs

Nothing to worry about. America excels in producing high-tech items other nations are not advanced enough to produce. So long as we are on the cutting edge of industrial technology, who cares who cuts
cloth, stitches shoes or makes steel?

Well, take a hard look at McMillion's stats. Not only did we run trade deficits in textiles, shoes and steel, we ran trade deficits in autos, trucks, TVs, VCRs, automatic data-processing equipment, office machines, electrical machinery, power-generating machinery, metalworking machinery, industrial machinery and optical goods.

Among the products where America boasts a trade surplus ? i.e., we sell more of these to the world than we import ? are soybeans, corn, animal feeds, wheat, meat, cotton, cigarettes, hides, skins, scrap, pulp, waste paper, coal, tobacco, rice and fertilizers. Reads like a list of the leading exports of the Jamestown colony.

Writes Paul Craig Roberts, free trader and co-architect of the Reagan tax cuts, "It comes as something of a shock to discover that the United States ... has the export profile of a 19th-century Third World colony." Once the most self-sufficient of nations, America is now dependent on foreigners for 40 percent of our manufactured goods, and our dependence on foreign oil and natural gas now costs us $90 billion a year. Why is this happening to America? With NAFTA and GATT, corporations can move capital, factories and technology anywhere, which gives the comparative advantage to low-tax, low-wage countries with large pools of dependable and docile (i.e., no unions) workers.
 
Software is listed in those reports as plastic and valued according to the bulk rate of plastic. The "surplus" calculations also fail to take into account the sale of US IP assests in the form of US culture and invovation. Do you have any idea how much of the world watches our television and movies? None of the IP exports are counted because there is no physical item that trades hands.

In summary those reports are some of the most biased and irresponsible counting of "exports" that people can use to solicit protection of our markets. We don't need market protections.
 
Soon we will have to kick out all those illegal immigrants that came to do the jobs no one wanted. Once all the manufacturing jobs are gone overseas, we will need those jobs back.
 
When a customer saves money by purchasing an import what happens to that saved money? The customer spends it on some other good/service. Thus imports of product X will hurt the manufactuers of product X but will help every single other American company (A, B, C, D, ... all improve). Please keep that in mind. Trading shifts resources from one company to other companies and at the same time the whole world is better off due to less waste.

Here is data from the last three decades:
1) Domestic automobile output grew by 8.6% during years of rising trade deficits (adding average of 21,900 jobs). Domestic automobile output fell by an average of 3.4% during years with a trade deficit shrink (costing an average of 25,000 automobile jobs per year).
2) During years of rising trade deficits, the growth of real GDP averaged 3.2% per year. During years of falling trade deficits the real GDP averaged 2.3% growth.
3) During years of rising trade deficits, American manufacturing output grew an average of 4.5% per year. During years of shirnking trade deficits the average growth rate of American manufacturing output was 1.4% per year.
4) American factory manufacturing jobs increased by 13,100 workers per year in years of rising trade deficits. American factory manufacturing jobs decreased by 116,700 per year during times of falling deficits.
5) In years when the deficit grew, the poverty rate in America fell an everage of 0.1% per year. In years of falling trade deficits American poverty rate rose by 0.3% per year on average.

I could go on and on. Read those and tell me what is better - Raising trade deficit or Lowered trade deficit?
 
During 2001 our trade deficit fell - leading to a drastic increase in unemployment... Hmm, is that more proof that trade deficits are good?
 
<<Not only did we run trade deficits in textiles, shoes and steel, we ran trade deficits in autos, trucks, TVs, VCRs, automatic data-processing equipment, office machines, electrical machinery, power-generating machinery, metalworking machinery, industrial machinery and optical goods.>>

Question: My ThinkPad was assembled in Mexico from American parts. How does it show up? If we're counting products that generate profit for American corporations but are assembled outside of the US and then imported as "imports" then the trade deficit will be severely skewed.

ZV
 
dullard's right imo.

i wonder though about it's effects on agricultural products (do the trade deficit numbers take these into account)?

this is where a lot of the government restrictions are in place (sugar, soybeans, etc.)...

i wonder how much of an effect it would on us if we were to remove all these restrictions...it'd be bad for farmers here in the short run,
but i think it'd really help everyone else domestically.

we might not notice a change in sugar at the supermarket from $2.50 to $2.00 (just an example), but i'm sure big companies like say, pastry companies or cereal makers, etc would benefit greatly.

 


<< i wonder how much of an effect it would on us if we were to remove all these restrictions...it'd be bad for farmers here in the short run,
but i think it'd really help everyone else domestically.

we might not notice a change in sugar at the supermarket from $2.50 to $2.00 (just an example), but i'm sure big companies like say, pastry companies or cereal makers, etc would benefit greatly. >>


I saw a statistic once that the sugar restrictions cost Americans $800,000 per American sugar farmer. That means that if we paid each American sugar farmer $400,000 per year to not farm sugar (they can farm anything else) and end these restrictions, then as a whole this country would save $400,000 per sugar farmer. Then multiply this savigns by the number of American sugar farmers (a couple of hundred) - and you see significant savings by allowing more trade.
 


<< I saw a statistic once that the sugar restrictions cost Americans $800,000 per American sugar farmer. That means that if we paid each American sugar farmer $400,000 per year to not farm sugar (they can farm anything else) and end these restrictions, then as a whole this country would save $400,000 per sugar farmer. Then multiply this savigns by the number of American sugar farmers (a couple of hundred) - and you see significant savings by allowing more trade >>



Food subsidies and protections aren't just to help farmers, they have strategic value. Don't think for a minute that millitary planners don't consider a future world that is hostile to us and we must rely on domestic food production. Growing certain crops is a skill and in as little as 25 years of no production you can wipe out the US's ability to produce a food product domestically. There are very good reasons to protect the food markets, not all of them but strategicly important ones (sugar happens to be one, wheat is another). Basically anything that is a staple food crop deserves strategic considerations.
 


<< Food subsidies and protections aren't just to help farmers, they have strategic value. Don't think for a minute that millitary planners don't consider a future world that is hostile to us and we must rely on domestic food production. Growing certain crops is a skill and in as little as 25 years of no production you can wipe out the US's ability to produce a food product domestically. There are very good reasons to protect the food markets, not all of them but strategicly important ones (sugar happens to be one, wheat is another). Basically anything that is a staple food crop deserves strategic considerations. >>



Lets suggest this compromise then:
That means that if we paid each American sugar farmer $400,000 per year to farm sugar and end these restrictions, then as a whole this country would save $400,000 per sugar farmer. Then multiply this savings by the number of American sugar farmers (a couple of hundred) - and you see significant savings by allowing more trade.

A more realistic cost is that normal sugar costs $1, but with our current restrictions the same amount of sugar costs $3.

The farmers can still grow sugar if they want, and they can be millionaires very quickly. However, there is no reason to artificially triple the price of sugar. Who would pay this money - the government. With what funds - a $1 sugar tax. Thus the price falls from $3 to $1 + $1 = $2.

This way everyone is happy - sugar farmers earn millions, America continues to farm sugar, Americans pay far less for their sugar, and more money goes to 3rd world developing countries (who can finally sell thier sugar at competitive rates).
 
Farming has been inefficient since farmers stopped being self-sufficient.

The usual trend is like this:

good year = farmer makes money. Farmer spends money to buy more land. Farmer makes more the next year; everybody is making more so prices drop a little. Farmer plants more to make up for this drop in price, etc etc etc until the market is in a glut and we're all screwed.

The life of a farmer has never really been that grand; they're never really made millions. So while I generally don't at all support trade restrictions or farm subsidies, I think it's necessary until there are enough people to eat everything that's grown 🙂

As to the budget surplus, or lack thereof, what matters is that the US has free trade as much as possible. I don't think I'd trade my dresden-made AMD xp 1500 or my Taiwanese mobo for a more expensive American part. That said, the design for both originated in the US.

Post script: the idea of a war with a wheat- or sugar-exporting country, or with one that exports enough wheat or sugar to affect America's ability to consume it seems highly unlikely, so at best it would be the paranoid types in the Pentagon.

While I'm rambling, I don't think that declining trade defecits cause unemployment; I think it's the reverse--people have less money to spend, so they buy less, e.g. imports from Japan or Europe (generally more expensive), so the defecit decreases. Similarly, when Japan is in a recession, they buy fewer American products, and the defecit rises. So your causality is reversed.

My conclusion is that we don't want to raise our trade defecit, but neither do we want to lower it at the expense of the economy. What we really, really want is lots of free trade.
 


<< Lets suggest this compromise then:
That means that if we paid each American sugar farmer $400,000 per year to farm sugar and end these restrictions, then as a whole this country would save $400,000 per sugar farmer. Then multiply this savings by the number of American sugar farmers (a couple of hundred) - and you see significant savings by allowing more trade. >>



Some agriculture in the US faces very high costs due to the labor intensiveness of the work involved. In these crops the US simply cannot compete with a world where prices for labor are lower. Something else to keep in mind is food safety, the US has heavy restrictions on types of farming. One I can think of off the top of my head is a prohibition on the use of "night soil" (ie human waste fertilizer) for crops to be consumed by humans. We often can't verify the integrity of these food products outside the US (sugar is a labor problem, so this doesn't apply).



<< Post script: the idea of a war with a wheat- or sugar-exporting country, or with one that exports enough wheat or sugar to affect America's ability to consume it seems highly unlikely, so at best it would be the paranoid types in the Pentagon. >>



You need to keep in mind that with the loss of subsidies entire industries of production inside the continental US could be eliminated. The issue wouldn't be a war with a nation that supplies these products it would be with our inability to ship the products stateside due either to the country in question being occupied by a foreign power or a naval blockade. In WWII all the nations worth having outside the western hemisphere were occupied (austriallia was in line, Japan was on the way). The supply of the UK by the US during hitlers blockade resulted in the sinking of 100's of merchant shipping vessels. Had Hitler succeeded in blockading England he would have starved them to death. US millitary planners must consider a world united against us.
 
I blame overindulged unions for the loss of America's manufacturing base. Their demands started as reasonable, but over the years have grown so outrageous that companies simply closed up shop, and moved manufacturing plants to places where labor is cheaper.

I would have done the same thing.
 
These figures also don't take into account services. Loans, various investment services, and a whole lot of other services where no goods are exchanged are not taken into account. If these figures were the actual trade numbers, the US economy would have been shrinking for 20-30 years consecutively, in fact the US would have went bankrupt by now.

Unions have nothing to do with the US's declining manufacturing base. Take a look at it this way, would anyone on this board work for a few bucks a day in a factory? Many foreign factory workers make less than some pimply kid at McDonalds! Especially if they live in a third world nation.
 


<< So your causality is reversed. >>



Yes I realize that it is reversed; however, they must go hand in hand. When America's economy declines, so does the trade deficit. When America's economy improves, the trade deficit becomes larger. When people argue that the trade deficit should be decreased - they fail to realize that only way to cause a trade deficit decline is to have America's economy worsen. So people's efforts to stop natural trade (thus stop trade deficits) can only succeed if they also hurt the economy. So I should say efforts to lower the trade deficit hurts the economy (instead of saying lowering the trade deficit hurts the economy). But that is such a subtle difference that I can be almost perfectly accurate (and far more persuasive) if I just say that it causes unemployment.

I always have to pick and choose words so carefully around here. Too correct and no one understands. Make a slight approximation and I get nailed.
 
In WWII all the nations worth having outside the western hemisphere were occupied (austriallia was in line, Japan was on the way). The supply of the UK by the US during hitlers blockade resulted in the sinking of 100's of merchant shipping vessels. Had Hitler succeeded in blockading England he would have starved them to death. US millitary planners must consider a world united against us.

The world in 1939 was a far, far different place than it is now; there couldn't be another hitler. The only country capable of producing someone with that breadth of ability is China (economic-military might i mean; not degree of evil) and China doesn't have the ability to blockade Taiwan or Japan.

Further, the idea of extraordinary (30%+) subsidies for such an outside chance--or hell, any state running something so enormous as farming--strikes me as really undesireable.

I do agree about American farming restrictions and their use, and I do think that some subsidies are necessary. After all, most of the midwest relies on farming.

I don't think it's fair for America to preach free trade so it can sell its produce overseas, despite funding 30% of the production of that produce.

I agree about unions to some extent, though you shouldn't forget that at the time of the pullman strikes, working in a factory was really an awful occupation. I think that it's a Good Thing that people have living wages; a prominent interpretation of the cause of the Great Depression is that America could produce more than enough, but people couldn't buy it because their wages weren't high enough to allow for such purchases. I suppose I'm in the awkward stance of being vehemently anti-union and anti-corporation, but c'est le guerre 🙂

Again, I'm almost across the board (the notable exception being monopoly-busting) against government intervention in the economy, but I can see its use in some circumstances, particularly farming, setting standards, etc. Not that my opinion is of some overwhelming value
 


<< I suppose I'm in the awkward stance of being vehemently anti-union and anti-corporation

Again, I'm almost across the board (the notable exception being monopoly-busting) against government intervention in the economy, but I can see its use in some circumstances, particularly farming, setting standards, etc. Not that my opinion is of some overwhelming value >>



I'm in almost the same boat. I'm against greedy unions and greedy corporations. The reason is that both sides are too focused on themselves even if it means a terrible disruption to the rest of our economy. A railroad/airline strike is on the news weekly - potentially causing great economic damage to the customers. And these strikes are usually minor (workers demand to be paid better than all other airlines/companies won't give in to simple human right requests).

I think there are a few good places that government can intervene into the economy. One example is proper low income housing. My wife and I got through college because of this type of program. A new apartment complex can go without paying taxes if they pass the savings on to the renters (who must be below 1/3rd of the average area income/wealth). After 10 years the apartment complex must pay taxes and may raise the rent (it reverts to normal). This way the building never goes into disrepair and lots of new apartments are built (the two main problems with housing price limits in the past). So the government made a small sacrifice in taxes and thousands of the poorest people get a nice new apartment for a price they can afford (and landlords aren't hurt at all). This is an example of a successful government intervention. Making American's pay nearly a billion dollars per year to save a couple hundred sugar farmer's jobs is a waste.

However, I think that some monopolies are acceptable. In fact some are quite desireable. Imagine if there were 100 different major computer operating systems from 100 different companies. Your computers at school would be different than ones at work which must be different from ones at home which are incompatable with your friends... In this case the ease of use far outweighs the costs by a MS monopoly. Imagine your grandmother needing to take college classes to learn how to operate her new computer. Every time she gets a new machine it has a different operating system and she cannot use it unless paying hundreds for more training. In this case, paying extra to MS far outweighs how much it will cost for everyone to learn 100 operating systems. (Plus we always have free Unix for those who don't like MS).
 


<< The world in 1939 was a far, far different place than it is now; there couldn't be another hitler. The only country capable of producing someone with that breadth of ability is China (economic-military might i mean; not degree of evil) and China doesn't have the ability to blockade Taiwan or Japan.

Further, the idea of extraordinary (30%+) subsidies for such an outside chance--or hell, any state running something so enormous as farming--strikes me as really undesireable.

I do agree about American farming restrictions and their use, and I do think that some subsidies are necessary. After all, most of the midwest relies on farming. >>



History has a funny way of repeating itself. We aren't talking tommorow, it would take 25+ years to wipe out the farming information we have. But the risk is, in 25 years can you say there won't be an enemies of the US that could threaten our very survivial? Consider this when you asnwer that question, 25 years ago everyone in this country would have laughed if you said China would be a superpower. We don't know what the future holds, the strategic position to maintain our own freedom requires that we assume the world will unite against us.

Don't get me wrong, I'm not necessarly in favor of subisdies but you must consider the strategic importance of some of the things the government does.
 
I appreciate your point, but IMHO the value of farm subsidies is far outweighed by the detriment they pose to the free market system. Just a difference of opinion i guess.
 


<< Why is this happening to America? With NAFTA and GATT, corporations can move capital, factories and technology anywhere, which gives the comparative advantage to low-tax, low-wage countries with large pools of dependable and docile (i.e., no unions) workers. >>

Corporations did all those thing before NAFTA and GATT. They were doing it en mass in the 70's and 80's.

<< Unions have nothing to do with the US's declining manufacturing base. Take a look at it this way, would anyone on this board work for a few bucks a day in a factory? Many foreign factory workers make less than some pimply kid at McDonalds! Especially if they live in a third world nation. >>

And their cost of living is so low that a woman in mainland China making $1700 (US) a year enjoys a middle class standard of living.

Unions can't take all the blame for the decline in US manufacturing jobs, but they undeniably shoulder a fair share of it. Militant bargaining units such as those in Flint, Michigan have ran manufacturing jobs out of their communities. They cannot claim it is because of 'corporate greed' vis-a-vis foreign labor, because GM is building two new plants in Michigan, they are employing UAW workers in those plants, paying them union wages, GM just isn't building them in Flint (for good reason). In fact, most of the jobs Flint "lost" (excepting technology) did not go to other countries, most went to other unionized plants in the US and Canada, some to other plants within Michigan (Pontiac and Dearborn).

And let's be honest, there is no defensible reason for paying unskilled laborers (many of which barely graduated high school) $17.00/hr to turn lug nuts. It isn't as if their 'skills' are in such demand that companies 'have' to pay that much to attract workers. Companies are forced to pay that due to threat of economic extortion (economic terrorism?) by unions. If union members are so sure their labor is 'worth' that much, let the free market decide if turning a screw should command $17.00/hr (we know they won't do that) just as other demand skills do.

The number of manufacturers who have closed or moved to other countries because they could not pay high school drop-outs top wages are legion. There are a number of pressures in a manufacturing business, and high labor costs are one of the most oft-cited reasons that makes the difference between profitability and loss. It is the straw that breaks the camel's back for a lot of companies, to use a cliche.

Its a different world than in 1930. The US is NOT the only country in the world with a modern industrial and manufacturing base. Its not as if the US had a booming export trade because we were the 'best'. That presumes a condition where healthy competition existed. There was no competition. The US had a booming export trade because we were virtually the ONLY game in town producing the goods other countries wanted. How long did we think that could last before other countries built their own modern manufacturing and industrial base?

I'm not entirely sorry to see it go, remembering how rivers used to catch fire and burn because they were laden with those pesky by-products of industrialization; thousands of dead fish washing up on river banks; shorelines covered in foul-smelling industrial goo (great for the family vacation on Lake Erie)...and some people believe their children are by some mysterious feat immune to these pollutants? Let China and Brazil pollute their rivers, lakes, streams, farm lands and air the way we have for the last 100 years.

It is a different world economy and the US can NOT compete with developing countries in many respects, nor should the US entertain any delusions that it can. Developing countries are in the same development curve the United States was 80 years ago. To take a position of protectionism would not only substantially increase prices of many things that U.S. consumers have long become accustomed to getting for less (hurting the economy), it enables another generation or two of unskilled workers to defer joining a technology/skill based labor force, making that transition even more difficult when they are left with no other choice.
 


<< [In this case the ease of use far outweighs the costs by a MS monopoly. Imagine your grandmother needing to take college classes to learn how to operate her new computer. Every time she gets a new machine it has a different operating system and she cannot use it unless paying hundreds for more training. In this case, paying extra to MS far outweighs how much it will cost for everyone to learn 100 operating systems. (Plus we always have free Unix for those who don't like MS). >>



It seems you don't know the price of MS-monopoly...

1. Reduced innovation. MS claims it innovates. It doesn't. It makes cheap imitations of superior inventions and floods the market with it.
2. Reduced jobs. MS buys or destroys competition, resulting is lost jobs.
3. Reduced freedom. I could go on and on about this one, but I wont. But we all remember how MS was caught few weeks ago spying it Media Player users?

There are no good things with a monpoly. More tax-money because MS has such high profit-margin? Think again!

Who talks about 100 OS'es? going from one Windows to next requires at least a bit re-learning, so having a monopoly is no saving grace. And of course, if there were like 3-5 popular OS'es, most people would stick to one, some might run several. But the point is, they wouldn't have to learn a new OS, they could just stick to their tried & tested OS.
 


<< When a customer saves money by purchasing an import what happens to that saved money? The customer spends it on some other good/service. Thus imports of product X will hurt the manufactuers of product X but will help every single other American company (A, B, C, D, ... all improve). Please keep that in mind. Trading shifts resources from one company to other companies and at the same time the whole world is better off due to less waste.

5) In years when the deficit grew, the poverty rate in America fell an everage of 0.1% per year. In years of falling trade deficits American poverty rate rose by 0.3% per year on average.

I could go on and on. Read those and tell me what is better - Raising trade deficit or Lowered trade deficit? >>



Dullard, I don't think I agree with you here. Say I'm going to spend $30,000 on a new vehicle and end up buying an import for $29,000. Then yes, I have 'saved' $1,000 for which I may spend on other goods/services in the US. However, the majority of the benefit of my original $29,000 purchase (at least, the wholesale price) is going to leave the country as it supports the import vehicle manufacturer, laborers, suppliers, shipping channels, etc.

To make it a very simple example (ignoring the source of parts, etc.), which is better: Spending $30,000 on a domestic vehicle and having $30,000 reside in the US? Or spending $29,000 on an import, distributing your $29,000 to foreign markets and the remaining $1,000 in the US?

And for the examples you've provided showing our trade deficit increasing/decreasing, how much of this do you think is actually a factor of the economy as a whole? When we (the US) are doing well, we spend more money both domestically and internationally. When we are in a recession/depression, then we are buying less so we import less goods -and- our internal businesses suffer.

(edit) - Just saw your later post explaining this part. Nevermind.
 


<< Unions have nothing to do with the US's declining manufacturing base. Take a look at it this way, would anyone on this board work for a few bucks a day in a factory? Many foreign factory workers make less than some pimply kid at McDonalds! Especially if they live in a third world nation. >>



Simplicity reigns supreme again...

I'll make this easy:

I make widgets and my cost to make them is material + labor + distribution + marketing.

Now, say I want to make them over seas. My cost to get them to market has just at least tripled.

The benefits vs cost has to be EXTREME before I'll move my manufacturing overseas and pay three to ten times the amount I previously paid for getting my widgets to market. Even if I use distributors, THEIR cost to get my widgets to market will be the same as mine, and will affect the retail price of my widgets.

So, you see, just pointing out that over seas labor is extremely cheap isn't nearly enough to make me move my manufacturing plants there. The labor cost here has to be beyond the point that the added costs of distribution are offset. Unions have brought this on with unreasonable demands.

As I pointed out, in the beginning Unions had very reasonable demands. But, just as with all powerful special interest groups, they got greedy and destroyed the very thing that fed them. There is no damn reason a basically unskilled worker who attaches bolt A to nut C all day on an assembly line should make an upper middle class salary. His labor is NOT worth that much. In fact, in most cases, that pimply faced kid at McDonalds has a more challenging job.
 
Not that I happen to like the deficit situation,

BUT

Who has more control

Those who dole out computers and software or food?

 
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