Record US Trade Deficits Spell Impending Economic Defeat

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.

Well, I note that I spend lots more money at Publix Supermarkets than they spend on me. That must mean I'll be going down the tubes to economic defeat pretty soon.

Mr. Hawkins said:

"This [large trade deficit] is a situation usually associated with underdeveloped countries on the brink of financial collapse."

THAT is a FALSE STATEMENT, rather easily disproved.

And Mr. Hawkins also said:

"The Bush Administration is ideologically opposed to doing anything about the deteriorating international situation."

THEREBY exposing his own ideological "agenda" -- since the recent decline in the dollar is hardly a secret.

So, what you're pushing here, Willie, is "Junk Economics".

Maybe you need to spend a few days enjoying the economies of such "Workers' Paradises" as Germany and Japan.

Oh? What's that? High unemployment and economic recessions do NOT fit your definition of "workers' paradise"?

Well, then...

Back to the "ole drawing board" for you, eh?

What bill collector? What bill? We don't have a MONEY deficit,

Sure we do. Dubya has to borrow money from foreign nations to increase all those government service jobs.

Record US Trade Deficits Spell Impending Economic Defeat

HA HA HA HA HA HA HA HA.

We buy lots of things way cheaper than we could buy them if produced domestically (which means we have both the goods as well as extra money to spend on other things, even domestically-produced things) and give the sellers money that they can't use in any other way than to buy U.S. goods and services.

Here is the map I promised. Note that trade has been in surplus since the Civil War, or so I hear ( I can't seem to find any older data going back that far). Basically, it's been positive since we discovered "industry",as opposed to "agriculture". And it was how we got rich.

It looks like it was 1975.
The value of the dollar has declined significantly since then.

I knew 1975, Willie. 1975 was NOT a good friend of mine -- or other living creatures who like prosperity.

Has the dollar declined since then? Or have we wrung out inflation? Perhaps you don't recall Jerry Ford and the stupid WIN buttons. Or wage and price controls? Or double digit mortgage rates?

Mr. Hawkins said: "This [large trade deficit] is a situation usually associated with underdeveloped countries on the brink of financial collapse."

THAT is a FALSE STATEMENT, rather easily disproved.

Uganda Trade Deficit Swells
And We have the SAME amount of Public Debt! 62% of GDP !!!
(Okay, Uganda's debt situation is a little better than ours.
Theirs is actually 62.2% and ours is 62.4%
So why quibble over a mere 0.2%???))

So does every other country. What's the world to do when the world bank calls in all it's debts to all the countries in the world?

As far as the national DEBT is concerned, It's been much higher than it is now, and in fact percentage wise, it's less than it has been, well within perameters. No worries.

"If you don't think the rest of the world would react, your kidding yourself."

You are correct, it is to late to save the American economy. We as did Spain and England before us by adopting "free trade" policies, will decline as a world economic/miltiary power. Europe has already over taken us in the very hi tech civilian aerospace. Japan and China have over taken us in ship building. Asia has already over taken us in consumer electronics and computers. And the list goes on and on and on. Soon, India will over take us in programming. We have a good lead in medical technology but India is catching up fast.

But we have plenty of forests and farm land so our children can surivive by supplies the more advanced nations with the raw materials thier economies need. Plus, the cost of living in poor nations is much lower that of advanced so we will should be able to attrack plenty of wealthy tourists from the first world nations of the future.

First of all, I didn't say toss a tariff on everything. Second, Americans pay the taxes no matter where they're derived from, Third, foreign companies could not compete with us if we start lowering the cost of production.

The 60-70's were when free trade absolutists started to tighten their grip. We had all the free trade talks, we went off the gold standard for good, taxes and spending and inflation went higher and higher. These were not conservative years. These were the years when the enlightened ones took power. Nixon "we're all keynsians now". Give me Ronald Reagan and Calvin Coolidge and Adam Smith any day.

I remember the big stink when the Japanese bought Rockefeller Center (for about 3 times what it was worth).

Or when they bought Pebble Beach. Which several years ago they had to sell at a massive loss.

True, but what's the goal? A protective tariff is used to cause the import's price to be higher than the domestic item's price so that people will buy products made in their own country.

A revenue tariff is an excise used to raise revenue only. The products taxed would be chosen to generate the most revenue with the least harm.

of course, these can be combined. But a protectived tariff is generally much higher, such as the 100 percent tariff that Reagan put on Japanese motorcycles to protect Harley Davidson.

Oh, I rember those "wonderful times" when I got caught in big debt with a 17% mortgage. The supposed "good old blue collar days when a worker could afford a house"... NOT!!!!! I recall working 20 hrs a day to keep my last nostril above water too! Damn near lost it all back then.

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