He's baaaack
Posted on 02/18/2005 9:55:18 AM PST by Willie Green
For education and discussion only. Not for commercial use.
It is difficult to decide whether the trade figures for 2004 or the Bush Administration's reaction to them indicate the greater danger to the American economy and nation. Last year's trade deficit hit $617.7 billion -- surpassing the record 2003 deficit by 24 percent. The deficit in goods was even higher, at $666.2 billion. The imbalance increased as a share of the economy to 5.3 percent of gross domestic product, up from 4.5 percent in 2003. This is a situation usually associated with underdeveloped countries on the brink of financial collapse.
The Bush Administration is ideologically opposed to doing anything about the deteriorating international situation. It is content to passively accept whatever transnational corporations and foreign governments do to shape the world economy to their advantage. Attempts at positive spin took their most unbelievable form in Treasury Secretary John Snow's testimony to the Senate Budget Committee on February 10. "What those numbers reflect is the fact that the American economy has been doing well relative to other economies," he claimed. "We are importing more from those other economies because we are creating more disposable income."
Yet, according to Commerce Department figures released in January, disposable income by the third quarter of 2004 had increased at an annual rate of 3.5 percent. How does that translate into a 24 percent hike in the trade deficit? Snow apparently assumes that Americans will spend most of any increase in income on imports rather than on American made products. Why would this be true unless American firms are being beaten out by their foreign competitors?
This pattern is not seen elsewhere. Per capita income in Europe and Japan is on a par with America. The European Union actually has a larger combined economy than does the United States, with Japan in third place. Both the EU and Japan run trade surpluses, and in fact use their large gains in the U.S. market to boost their own economic output and income.
China does the same. It is growing three times as fast as the U.S., and its American trade surplus of $162 billion, up by $38 billion from 2003, is a sign of its strength as the rising manufacturing hub of Asia. Beating out the competition in foreign markets is the real sign of successful commerce and government policy, not losing market share to overseas rivals as has been the American case for over a decade.
Here is the fundamental error that has bedeviled political economy for centuries. Is international trade essentially about cooperation or competition? Classical liberals see free trade as creating a world peacefully arraigned by a division of labor and economic integration (a concept of global unity that goes well beyond trade). The Bush administration is in this camp. Those with a more realist or conservative bent see a world based on a more fundamental economic principle, relative scarcity. The first law of economics is that there is never enough to go around; wants are unlimited while the ability to satisfy those wants is limited at any point in time (though it can be increased over time). Thus, there is always competition to gain "the lion's share" of what is available, be it jobs, raw materials, industrial capacity or the means to advance to the next level of prosperity through the accumulation of capital and technology.
Everyone agrees that capitalism is based on competition. Firms are driven to innovate and expand or be left behind by their commercial rivals. What the free traders overlook is that there are societal consequences if the nation's capitalists consistently lose to foreign competitors, or abandon the nation for operations overseas (again in response to competitive pressures).
Americans understood this national aspect of competition during the decades when the United States attained global leadership. By the dawn of the 20th century, America was the largest, most productive economy in the world. In 1902, Brooks Adams published THE NEW EMPIRE proclaiming how American had surpassed Europe as the center of the world economy. While not as well known now as his brother Henry, Brooks was a prominent member of the 4th generation of the illustrious Adams family, counting from Founding Father President John Adams. Brooks and Henry Adams were in the intellectual circle surrounding President Teddy Roosevelt.
"The world seems agreed that the United States is likely to achieve, if indeed she has not already achieved, an economic supremacy. The vortex of the cyclone is New York. No such activity prevails elsewhere; nowhere are undertakings so gigantic, nowhere is administration so perfect; nowhere are such masses of capital centralized in single hands. And as the United States becomes an imperial market, she stretches out along the trade routes which lead from foreign countries to her heart, as every empire has stretched out from the days of Sargon to our own," wrote Adams.
The former global Superpower, Great Britain, according to Adams "is gradually assuming the position of a dependency, which must rely on us as the base from which she draws her food in peace, and without which she could not stand in war," a view borne out in the two world wars of the 20th century. Because London had adopted free trade while Washington still practiced protectionism in Adams' day, American firms were able to profit greatly from their penetration of the British Empire – much as the rising (reborn) empire of China is doing in the American market today.
Indeed, at the end of Adams's interpretative world economic history, he warns that the center of gravity may continue to shift, to Asia. Japan was a rising power in his time, but he thought in the long run China would prove more formidable. "Prudence, therefore, should dictate the adoption of measures to minimize the likelihood of sudden shocks," he advises. "American supremacy has been made possible only by applied science. The labors of successive generations of scientific men have established a control over nature which has enabled the United States to construct a new industrial mechanism, with processes surpassing perfect," he argues, but "America holds its tenure of prosperity only on condition that she can undersell her rivals."
One of my favorite passages also comes near the end of the work: "Life may be destroyed as effectively by peaceful competition as by war. A nation which is undersold may perish by famine as completely as if slaughtered by a conqueror. Therefore, men thrown into acute competition by rivals must have the ingenuity to secure an equality of equipment, else they will suffer; it may be by hunger, it may be by the sword, but in either case the purpose of nature will be attained. Nature abhors the weak."
While it is fashionable to dismiss works of that period as "social Darwinism," labels do not change how the world works, which is in ways just as intense now as ever. Brooks warned against the classical economists dogma of free trade. "Now men are apt to lecture on political economy as if it were a dogma, much as the nominalists and realists lectured in medieval schools. But a priori theories can avail little in matters which are determined by experiment....No one can say a priori what will succeed; the criterion is success." By this standard, U.S. trade policy is a failure, no matter how many academic economists claim it should be working in theory.
The dangerous situation in America today is no longer just one of particular industries being battered by foreign competition. The declining dollar indicates an impending financial meltdown, which would be a clear indicator of the nation's economic defeat in the global arena, and the coming end of its world leadership. America may no longer be a "new empire" but it would be tragic if its leaders allowed foreign rivals to push the country into a retirement home prematurely.
Our largest import in terms of dollars is OIL.
You know, that stuff which we distill and then put in our cars and SUV's so we can take the kids for a drive to the ice cream stand.
Seriously, the bulk of our trade defecit is due to our large need for energy. Cut our oil imports and our trade defecit drops, if I'm not mistaken, to the point where it about evens out with the goods and services we export around the world.
All this talk about defecits causing our demise is simply chicken-little talk.
Most of the money exported goes to OPEC countries which in turn plows it back into US and global companies through the stock markets.
So you're saying that a one to two percent tariff on selected imports will cause such conternation in Europe and Asia that it will cause such companies to collapse or go out of business. A lot of nations in Europe subsidize their industries so that the prices of their products are lower than ours and yet there's nothing we can do to equalize or prevent this. We're just supposed to take it.
Production creates wealth.
Consumption diminishes wealth.
If you produce more than you consume, you get wealthy.
If you consume more than you produce, you go broke.
What don't you understand about that?
Hello? Do you follow the WTO at all?
No I do not. We need oil for our defense. I'm for drilling our own oil and decreasing the regulations that make oil so expensive here. Then we can sell it to our own people at a lower price than what we could import it for. This would lower the trade deficit on that score. How can forieign nations purchase our oil when we don't make much and it's too expensive.
No that's not what I'm saying. But I should add that your lack of concern about raising taxes (after all, that's what tariffs are) is troubling, and frankly, not very conservative.
Oil is an imortant "good" that is imported, and not for just the gasoline factor. It's used in manufacture of many many products. it's the main, and biggest part of our "trade deficit" which we turn around and make into exportable goods, even the plastics we then ship over to China so they can make bumber covers for cheap chevys.
There's no level of tariff that would cover our expenditures even if they were significantly reduced, which isn't going to happen in the foreseeable future. As much as I dislike personal and corporate income taxes, tariff are even worse for interfering with economic efficiency. If a tariff was proposed by the Right, the Left would sign on to it and spend the money on more dubious programs.
Another whacko article from a two bit website.
That' s true. I remember seeing the cover of National Lampoon magazine in 1989/90 and it said Welcome to the 90s with a big grinning Asian man behind a desk extending a handshake.
Here's an example of what your 1-2% tarif can do.
lets say I have an operation that takes a raw material which isn't available in the USA, I refine it and send it over to anther operation I have in the USA, where is is used in the final making of a finnished value added product. I then sell that product not only in the USA, but back to the country where I got the raw material from.
You want to put a tarif on that product? Then I will have to close the USA plant and make the whole product out of country. That's the impact even as much as a 1-2 % tax can have. No way am I going to give up 1-2 million is real money just because of protectionist policy, to protect what? From what? myself?
God knows I hate to agree with Willie, but he's right.
From his post #1:
Gross domestic product (GDP)............................. $11,728.0 billion
Net exports of goods and services........................... -609.3 (-5.19% of GDP)
So by Willies logic, we produced over 19 times in GDP what we consumed in net exports.
When was this "relatively stagnant" economy? When we went from a coastal farm nation to an industrial world power in less than a hundred years? Or during the post Civil War period when he had surpluses every year for thirty years? Or during the 1920's when we paid down the debt, lowered spending and slashed income taxes?
I'd have to look, but for the past 50 years I think that we have never not had a trade deficit.
I'd have to look, but for the past 50 years I think that we have never not had a trade deficit.
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