U.S. Trade Deficit Hits All-Time High

www.forbes.com ^ | www.forbes.com

[soccer_linux_mozilla]

The U.S. trade deficit ballooned to an all-time high of $617.7 billion last year, pushed by soaring oil prices and Americans' insatiable appetite for everything foreign, from cars to toys and food.

The Commerce Department reported Thursday that the 2004 imbalance rose 24.4 percent from the previous year and marked the third year in a row that the deficit had set a record. The imbalance with China swelled by 30.5 percent to $162 billion, the highest ever with any country.

[ETERNAL WARMING]

While I enjoy a bargain, I don't consider foreign goods to be cost effective for the most part. In many cases the quality is appalling, and the goods expensive considering the low quality. That is never a bargain.

An example: My husband bought me a portable coffee cup for Christmas. He paid $4.97 for it at WalMart. On the 4th usage, I went to unscrew the lid so I could put it in the dishwasher and the rim separated from the black plastic cover. That was rather expensive considering the amount of use I got out of it. I'd rather pay $10.00 and have it last a year.

And the capitalists keep insisting that the goods are "cheap." Not so. Goods are priced at what the market will bear. So 'cheap' doesn't have anything to do with it.

Nikes cost $5.00 per pair to manufacture and ship into the United States. Why is it the price is still $95? I've never noticed goods cost less just because companies employ cheaper labor overseas. Au contraire, they cost just as much if not more than they always did.

[endthematrix]

"I've never noticed goods cost less just because companies employ cheaper labor overseas. "

I'll NEVER forget my local MSM attempt to sell GATT/WTO because it would mean cheap German beer. Becks never dropped in price.

[snowsislander]

Why is it the price is still $95?

Pricing, at least at the consumer level, generally is done by what the market will bear rather than the intrinsic value of a good or its cost of production. (Though both do form something of a lower bound, it can be a mighty elastic one.)

[Once-Ler]

Between us joining the NFTA, WTO and soon FTAA we can kiss our economy good buy

Our economy is good and getting better. After NAFTA was passed we experienced unprecedented growth despite tax increases. Trade is a win win solution for everyone.

If you want to know our future with globalization, look at N. Italy.

huh? There is no economy to rival the US. Want to know our future? Look at where we were when Carter was President and look at where we are today with the pro trade policies of Reagan, Bush, Clinton, and Bush.

I love trade, but honestly...you're gonna have a hard time selling your snake oil in America.

[Once-Ler]

We are now running a trade deficit with Canada to the tune of over $65 billion per year -- definitely not something we were promised when NAFTA was being touted.

I'm reasonably sure that NAFTA did not require exact matches of exports and imports for its sponsor countries. NAFTA promised increased exports for Mexico USA and Canada. Did we increase our exports to Canada? If so NAFTA delivered. What matter if Americans have the income to buy more than we sell. We make money selling things to ourselves as well.

The times we see a shrinking trade deficit are during recessions because Americans do not have disposable income to purchase foreign goods.

Thank you for the link pointing me to the latest trade data.

[Once-Ler]

Nikes cost $5.00 per pair to manufacture and ship into the United States. Why is it the price is still $95? I've never noticed goods cost less just because companies employ cheaper labor overseas. Au contraire, they cost just as much if not more than they always did.

Your paying for an image and brand name with Nike. If you want cheap import shoes try another brand. You will find many shoes for $20 and less at WalMart.

[ninenot]

You nailed it--the single most scary scenario is a drop in value of housing.

Greenspan pumped up housing "value" by cheapening mortgage money, and since housing is purchased on cash-flow, that simply moved available dollars into asset inflation.

But if it ends.....hooooooboy.

[Paul_Denton]

Nay, lack of choice... We do have this choice, though: buy less, buy used, buy real property, and save. New domestic competition is needed, but much of the potential for that has been systematically blocked by several policies.

I agree.

[Paul_Denton]

I agree but we have to do something to counter China. The course we are taking is disastrous.

We need to lower the dollar value even more, to make it more affordable to make stuff here.

[1rudeboy]

So funny. You are complaining that Beck's beer and Nike shoes have not dropped in price? LOL

[RipSawyer]

"Sooner or later, with our government spending like crack crazed sailors, Greenspan will raise interest rates enough to finally put an end to a lot of the plastic spending. Then the real interesting times start.">>>>>>


I speck UB bout rite. Bout den wese all gwine git a lessin in economic stuff lak folks knowed back when folk tawked like dis down heah.

[RipSawyer]

"Nikes cost $5.00 per pair to manufacture and ship into the United States. Why is it the price is still $95?"


You are buying a name! When you learn to shop for equal quality at the best price rather than buying a name that your peers will approve you will learn that there are shoes just as good as Nike for one fourth to one third the price.
Too many Americans believe the old saw "you get what you pay for", realize that the truth is "you almost never get more than you pay for but you very often pay for more than you get". I have learned over the years that most retail prices are determined by factors other than the actual cost of production and very often the best is NOT the most expensive.

[snowsislander]

* The 2004 exports of capital goods ($331.1 billion) were the highest since 2000 ($356.9 billion).

That would be debt.

I have to admit I have puzzled over this comment for a while. I think (and I apologize if I have guessed incorrectly) that you are saying that "capital goods" are the same as selling debt?

If so, then no, actually, capital goods are indeed goods.

Of all places, a Clinton website has a fair description of what we had expected on the capital goods front with NAFTA:

Fact Sheet on NAFTA US Capital Goods Exports

THE WHITE HOUSE

Office of the Press Secretary

---

For Immediate Release September 23, 1993

NAFTA NOTES

Thursday, September 23, 1993

U.S. Capital Goods Exports -- The Real Story

• One of the strongest arguments for NAFTA is that it will continue the growth of U.S. exports to the dynamic Mexican market. In the past five years, the U.S. has gone from a $5.7 billion trade deficit with Mexico to a $5.6 billion surplus. NAFTA critics, however, point out that much of that surplus is made up of capital goods -- and claim that this is nothing more than taking apart American factories and sending them south to Mexico. But this claim misses the real story behind U.S. capital goods exports.
  • In percentage terms, capital goods have been the slowest growing major export category to Mexico in the last five years. While capital goods are still the largest component of U.S. exports to Mexico, they have decreased from 40 percent of total exports to Mexico in 1987 to 33 percent in 1992. In comparison, capital goods make up 40 percent of our exports to developing countries, and 39 percent of our exports to the world.
• The flawed logic that assumes that capital goods are merely a one-time export which will produce a flood of cheap imported goods flowing back into the U.S. misses the point. Capital plant equipment exported to factories in Mexico should not be seen in negative terms for the American economy. Production of cutting-edge technology such as robotics, generators, and production machinery supports the highest-paying U.S. manufacturing jobs; just as importantly, a healthy, expanding Mexican economy will continue to need such high-tech U.S. products. Even the U.S., the world's most productive economy, must replace a part of its capital equipment each year.

Additionally, capital goods are some of our most competitive exports and cover many things other than capital plant equipment: Boeing jets, IBM computers, AT&T telephone systems, John Deere tractors. The manufacture of all of these U.S. products support high-paying U.S. jobs, and cannot be construed as a drag on the U.S. economy.

• Finally, and perhaps most importantly, without NAFTA Mexico has no incentive not to fill its growing capital goods needs from Japanese and European -- rather than U.S. -- exports.

NAFTA Fact

• 83 percent of the growth in U.S. exports to Mexico in the last five years was for Mexican consumption -- not re-export. Additionally, in those five years exports to maquiladoras in relation to total U.S. exports to Mexico have fallen. In 1992, U.S. exports to maquiladoras comprised 22 percent of U.S. exports to Mexico, compared to 32 percent in 1987.

The little list Boeing jets, IBM computers, AT&T telephone systems, John Deere tractors is particularly ironic since production of all of them are now in the process (or have been) sent overseas. Even John Deere is cutting back on U.S. production (see page 27 of their 2004 annual report), and expanding its overseas production -- even at least some of their engineering and back office work is in the process of being sent to Pune, India.

[durasell]

Everything ends, eventually. No exceptions to the rule. It ends, then it starts up all over again in a much less amusing form.

But when housing prices plummet, people are gonna be annoyed and start looking around for someone to blame.

[snowsislander]

I'd add that if interest rates go up too much or too quickly then the housing market tanks in a big, big way. People will be angry if/when they wake up one day to discover they're upside down on their mortgages.

I am still concerned about the bursting of the housing bubble, but it appears to me from my recent observations of consumer prices that the Fed may be going to let inflation handle the underwater loan problem. :-(

[durasell]

I don't see a return to 10% inflation any time soon. However, and I don't want to sound overly negative, but if it comes to that, then we're talking about something very bad. A lot of people don't have much wiggle room when it comes to expenses as it is. You get a couple years of 10% percent inflation and a lot of people are going to go under.

[jb6]

Well, Walmart makes up something like 2% of the US economy. In other words, Walmart could pass itself off as any small/medium sized nation.

[jb6]

I think only ARMs will be affected by the interest rate, the long term rate is actually going down. But, credit card rates will sky rocket.

[jb6]

Except that when the value of those pieces of paper drops we don't buy much oil with it and our economy ends. Further, all our bases and deployments depend on the value of those pieces of paper. And by the way, we seem to send out more then just that: our factories heading to China, or haven't you noticed?

[jb6]

Exactly. I bought a thermostate coffee mug for $2, on the first use the lid leaked and I got coffee all over my shirt. So the mug is crap and my shirt is dirty. What a bargain.