Record US Trade Deficits Spell Impending Economic Defeat

AmericanEconomicAlert.org ^ | Thursday, February 17, 2005 | William R. Hawkins

[Phantom Lord]

being able to ONLY afford imported chinese products is not a sign of wealth. my wealth is not measured by how many many $9 toasters I can buy.

Lets assume I have an annual income of $300,000 and little debt. Why should I spend $50 on a "high end" toaster when I can spend $9 on a regular, no frills toaster and get the same toast out of it?

My buying the $9 toaster is not a reflection of my economic situation, but a reflection of my mental ability. I am smart enough to not waste the extra $40.

[Betaille]

"I included reference links to support my assertions."

You avoided the question. Anybody who has taken an introductory economics course knows that what I said about GDP is true. How do you reconcile your implication with that fact? The trade balance is accounted for in other parts of the GDP equation, yet you implied that GDP is reduced by the amount equal to the trade deficit. That is factually false. If you want to see my reference, pick up any Introductory Economics text.

[Willie Green]

Such policies contributed to a drastic decline in international trade. For example, U.S. imports from Europe declined from a 1929 high of $1,334 million to just $390 million in 1932, while U.S. exports to Europe fell from $2,341 million in 1929 to $784 million in 1932.

The Smoot-Hawley boogeyman theory has been debunked many times.
The decline in international trade was a result of the collapse of the speculative financial bubble in 1929. Those who blame Smoot-Hawley are guilty of reversing cause and effect.

[Phantom Lord]

China is draining US jobs in manufacturing and technology

China has lost many time more manufacturing jobs than America has. Who draining them from China?

[oceanview]

people with $300K incomes don't buy $9 chinese toasters, they buy $150 ones made in england from williams-sonoma that last a lifetime.

[Sam the Sham]

if you present americans with the cost of something priced in real dollars, unaffected by global effects - the cost of a college education, the cost of paying for private sector healthcare or health insurance - what happens? they run screaming to the government for subsidies. why? because most of them can't afford to pay for those things.

being able to ONLY afford imported chinese products is not a sign of wealth. my wealth is not measured by how many many $9 toasters I can buy.

Funny how the free trade, "what me worry" types ignore the fact that from the household to the government debt levels have skyrocketed. People and nations who live on plastic are one misfortune away from disaster.

[Phantom Lord]

people with $300K incomes don't buy $9 chinese toasters, they buy $150 ones made in england from williams-sonoma that last a lifetime

Some do, some don't.

[An Old Marine]

You know, I used to teach economics at the university level. What I found is that guys like this Willie Green would start out with a preconceived position then round up the facts to support it.

Perhaps not too surprisingly the consensus was always that we were on the verge of economic collapse. I can probably point to 50+ books with that conclusion. The interesting thing is that they always used different subsets of facts, usually competeing facts, to "prove" their position. The logic is the same as that used by the scientists proving global warming.

The current economic disaster fetish is the trade deficit coupled with budget deficits. Seven years ago the favored theory was that the overextended debt plight of the third world nations was going to cause the collapse of the American banking system.

What they miss is that these constant prognostications of disasterous collapse have gone far to marginalize the Democrats and their minions doom and gloom campaigning tactics.

[Sam the Sham]

As far as everything I (we) buy being made in China, that's B.S. as well. I buy cheap stuff that's made in china, consumable goods, like coffee makers etc that have a short lifespan. I buy Good stuff that I expect to last from either the USA, Canada, Europe. which may or may not contain parts from various other places in the world.

Apparently you haven't checked where components are made these days.

[Nathan Zachary]

Good thing you aren't married to a wife like mine who MUST have everything match her decor. cheap wal-mart toasters just won't do around here, because their main funtion isn't making toast, they must make a statement instead.

[Knitting A Conundrum]

Back in the 80s they used to say the same thing, and it didn't prove to be true, either...I've gotten tired of doomsayers finding facts to create their scenarios after seeing so many of them being wrong.

[snowsislander]

Yes, the point about of the skyrocketing import of goods is well taken: it's up 28% in just two years.

We are piling on debt at unsustainable rate:

The good news from the trade situation is that our overall exports of goods also set a record last year in dollar value.

Our exports of capital goods, while not quite at record levels, are also picking up.

Employment, while it is not at 2000 levels, at least is also on an upward trend and we may be able to break those record levels even this year; however, there's not much chance that we will actually have caught up in terms of the participation rate of employed persons to the whole population.

But the amount of debt we are creating is a lead weight on our system. Our international investment position was at -$2.6 trillion dollars as of last year's report, and I suspect that it will be far worse this year.

[Phantom Lord]

Good thing you aren't married to a wife like mine who MUST have everything match her decor. cheap wal-mart toasters just won't do around here, because their main funtion isn't making toast, they must make a statement instead

I'm right there with ya. I am married to a Long Island JAP! But I was able to teach her to be cheap in many aspects so as to allow extravegence in other areas (such as vacations, art work, some electronics, etc...)

[Willie Green]

The trade balance is accounted for in other parts of the GDP equation, yet you implied that GDP is reduced by the amount equal to the trade deficit.

Yes, anybody familiar with the fundamental bookkeeping techniques invented by Luca Pacioli can make that assertion. But to use that to imply that the Trade Defict doesn't diminish GDP is silly. It's right there in the basic calculation of GDP. Trade Deficits are SUBTRACTED. What don't you understand about that?

[oceanview]

japan is not china. they did not use a currency peg to guarantee a permanent benefit to themselves regarding trade. their currency floats, japan is not a third world nation regarding living standards. japan did not have an essentially infinite supply of workers willing to accept wages at the subsistence level, kept in check by a communist government holding them at the point of a gun and a prison term.

japan is not china, stop comparing the two.

[TChris]

I kinda remember that in 1975 a blue collar worker on one paycheck could buy a house, have health insurance, go away on vacation, send a kid to college, and retire on a pension. I kinda remember that while adjusted for inflation the prices of cars have remained pretty constant, auto loans were three years then but are six years now.

There are a lot more variables at work in your example than the trade deficit. Tax levels are much higher now. Cars are built much better now and have more -- albeit federally mandated -- safety features than in the 70's. College costs are a topic unto themselves. With 80-90% radical/liberal administration and faculty at most colleges, one can surmise that there isn't sound economic policy going on.

Incomes, adjusted for inflation, have gradually increased since the 70's.

When you compare the "United States Wage per Job" line above...

...to the graph of our trade deficit, you can plainly see that the two are not correlated at all.

In my state, blue-collar workers are still quite capable of buying a home, car and college.

[Always Independent]

The Chinese economy has nowhere else to go but up. They were nothing since the end of WWII and it should have been expected that it evenually develops. I'd say the same applies to India and Brazil. Our biggest problem is that our politics keep us from really taking advantage of the action. The Eu could care less about the moral aspects getting in the way of trade.

Sooner or latter I'd say the chinese economy will get a taste of some of the same problems we are facing.

[DM1]

"I heard the same crap when Reagan was President."
my sentiments exactly

[Nathan Zachary]

Import volume is a indication of consumer DEMAND. Consumers consume, importers supply. It means the consumer has money to spend. If the economy was bad, consumers wouldn't have surplus money to spend, imports would drop, then exports would exceed imports. EXACTLY LIKE GERMANY.

I can't buy a ford in China, nor a house, or the lumber to build it. Nor most of the domestic materials for the main goods I need to live a comfortable life.
I didn't import the concrete for my pool from China, nor the cement truck that delivered it, not the water, the construction workers, the steel re-rod, forms etc.Even the jacuzzi pumps, the water heaters, etc. are all American made, big ticket items you can't buy at wal-mart.

Take a good look around your house and see what really is imported besides some electronics and cheap toasters, and fake art.

[oceanview]

almost all your clothes and textile goods are imported, as well as electronics and home appliances. china is taking the furniture industry, its almost been completely gutted from north carolina. auto subasemblies increasingly come from china, so your car is part chinese. don't believe me, go to the chevy dealer and look at the sticker on an Equinox. and then let's start talking about FOOD. where does it increasingly come from? the US will be a net importer of food for the first time this year. need I continue?

most of the "american" stuff you buy these days are in the form of services, not goods.

and those same consumers who are so flush with money as you claim - why can't they afford healthcare or college costs?