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.
I'd have to look, but for the past 50 years I think that we have never not had a trade deficit.
I remember the big stink when the Japanese bought Rockefeller Center (for about 3 times what it was worth). Were people worried that they would ship it back to Japan?
In terms of our trade balance, here's a question: Excluding oil, if tomorrow Americans stopped buying foreign goods, whose economy would be more damaged, ours or China's?
Economies based on exports, such as China and Japan, are highly susceptible to destabilization.
Garbage in, garbage out.
Uh, during most of our history, Willie?
Say, during and after WWII? All of the fifties and sixties?
I'll go find a map for you.
I do. And I've noticed that we rarely get rulings in our favor and frequently get rulings against us. I'm for withdrawing from the WTO. It's a useless body and an arm of the UN. I am not for any international body telling us, a free people, what tax laws we can and cannot have.
On $1.7 trillion of imports, a two percent tariff amounts to $34 billion. That's not enough to fund the spending in Iraq and Afghanistan for six months. Be advised though that Congress would be happy to tax us the $34 Billion and then spend $50 Billion of it. No thank you.
Have you read my other posts? I'm for eliminating the income tax and all corporate taxes. I want the 16th amendment repealed. I'm aware that tariffs are taxes. I'm also aware that when we started lowering tariffs, we started increasing income and other taxes. Tariffs are indirect taxes and are more in keeping with Liberty than direct taxes. I'm as conservative as they come, in the tradition of Hamilton, Lincoln, McKinley, Coolidge, and Reagan.
Why are you telling me this? I was pointing out what the article said. Geez.
I agree that we could not survive with just tariff revenues in this period as we did in the past. But they should not be ignored as a revenue source. In my view they are preferable to income taxes. If I had my way, we'd have a national sales tax supplemented with tariff revenue. I'm for indirect taxes. They're more honest and we were a freer people when we had them.
Hey Wille! Here's some more bad news!! You bedder bail outa them Bonds!!! (Bail-Bonds, get it?)
" Bush Administration's reaction to them indicate the greater danger to the American economy and nation"
From reading some of the replies I get the impression that we should double our deficit every month and the economy will get better at an even more rapid rate. Another day older and deeper in debt.
Bush won't be holding the bag. He will be long gone when the bill collector appears, the dollar will be near worthless, jobs long gone, enterprises here will not be US owned and we won't be able to sell securities. Pessimistic? No, I'm an optimist that our economy will last 4 years.
So lets see, toss a tariff on everything, as you say, for revenue, triggering a tariff war. Americans will pay for it just the same, because it's added to the cost of the goods. In turn, besides driving up the costs of the goods overall, other countries will put a 2-3 or whatever % general tariff on all American goods, after all, whats good for the goose, is good for the gander.
Fed. sales tax does the same thing,ie fill coffers, but allows free flow of goods.
The stagnant days, were the 60-70's when there were too many tariffs, making foriegn business dealings a pain in the @.
OK, the US ran a trade surplus until 1978. Maybe there was a time in the past when we had trade deficits like those of the last 25 years, but I can't seem to find it.
Beginning with the oil crunch, it would seem, we have had nothing but deficits.
"I'm for withdrawing from the WTO. It's a useless body and an arm of the UN"
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Interestingly, a solid conservative like Bill Buckley would disagree with you.
http://www.townhall.com/columnists/wfbuckley/wfb20031206.shtml
trade deficit....mideast peace talks...just these continual meaningless buzzwords that never develop into anything but what they are.
Yep, that's all part of Dubya's fiscal "genius", inflation and interests rates rise, Americans work harder -- earn less -- and pay more for the products they buy --- and taxpayers watch more of their funds go into the treasuries of foreign nations to pay interest on the National Debt.
Good grief.
What bill collector? What bill? We don't have a MONEY deficit, we have a TRADE deficit. That simply means, we CONSUME more than we send out. It's already PAID FOR.
Oh wait, according to you's, that chineese coffee maker I already paid for, I'm going to have to pay for again sometime down the road. I get it now. (sheesh!)
Once again. I'm not talking about protectionism. A protective tariff and a revenue tariff are two separate things. And yes, if your product was one that we chose to raise revenue from, then a tariff would be placed on it. But I'm also for lowering income and/or corporate taxes at the same time we place tariffs. You may have extra profit as a result of the corporate or income lowering and keep your plant open here.
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