U.S. trade deficit reaches record high

The Centre Daily Times ^ | Wed, Dec. 14, 2005 | MARTIN CRUTSINGER -- Associated Press

[Willie Green]

For education and discussion only. Not for commercial use.

WASHINGTON - The U.S. trade deficit unexpectedly rose to an all-time high in October as oil shipments soared and the United States set deficit records with China, Europe, Canada and Mexico.

The Commerce Department reported that the gap between what America sells overseas and what it imports rose by 4.4 percent in October to $68.9 billion, surpassing the old record of $66 billion set in September.

So far this year, the trade deficit is running at an annual rate of $718 billion, far surpassing last year's $617.6 billion imbalance. Critics say the soaring deficit is evidence that President Bush's policy of pursuing free trade deals around the world is not working.

To counter the attacks, the administration has stepped up pressure on Europe and Japan to boost economic growth as a way of increasing demand for U.S. exports. It is also pressuring China on a number of trade issues, from textile imports to the country's currency, which American manufacturers say is being manipulated to give Chinese producers unfair trade advantages.

But lawmakers from both parties criticized the administration's approach as too tentative, saying the new deficit figure highlighted the threat to American jobs.

"Small business owners in Maine and across the nation are fighting to remain competitive with countries such as China that flagrantly disregard fair trade practices," Sen. Olympia Snowe, R-Maine, said in a statement.

Rep. Benjamin Cardin of Maryland, the top Democrat on the House Ways and Means trade subcommittee, said the administration had "failed to craft an effective strategy to deal with China's unfair trading practices."

Presidential spokesman Scott McClellan told reporters at the White House that the administration believed the best approach was to tear down barriers to American exports through free trade agreements and global trade negotiations under way this week in Hong Kong.

The deterioration of the deficit in October caught analysts by surprise. They had been forecasting that the imbalance would improve, reflecting a fall in global oil prices.

The average price per barrel of imported oil did decline slightly to $56.29, down from an average of $57.32 in September, but the volume of shipments shot up to 9.8 million barrels per day. The total bill for imports in October hit a record of $25.8 billion, up 7.8 percent from September.

A surge of Chinese shipments of televisions, toys and computers pushed America's deficit with China to a new monthly record of $20.5 billion. Through October, the deficit with China is running at an annual rate of $200 billion, far exceeding last year's imbalance of $162 billion, which had been the biggest deficit ever recorded with a single country.

On recent trips to China, both Bush and Treasury Secretary John Snow have lobbied Chinese officials to provide greater flexibility for their currency, the yuan, to find its proper value in relation to the U.S. dollar. American manufacturers contend that the Chinese are artificially depressing the yuan's value by as much as 40 percent as a way to make Chinese goods cheaper in relation to U.S. products.

While the Chinese did allow the yuan to rise by 2.1 percent this past summer, the currency has been essentially unchanged since that time.

The administration did reach an agreement recently to re-impose quotas on a wide range of clothing and textile products to stem what had been a flood of imports this year since global quotas were lifted last January. For October, imports of Chinese clothing and textiles declined by 10.9 percent from September but for the first 10 months of this year, Chinese imports are up by 47.6 percent compared to the same period in 2004.

For October, imports of goods and services rose by 2.7 percent to an all-time high of $176.4 billion, led by the surge in oil shipments. U.S. exports also rose by a slower 1.7 percent to $107.5 billion.

Critics blame the soaring trade deficits for a loss of 3 million manufacturing jobs since mid-2000 and they argue that Bush's push to strike free trade agreements eliminating all trade barriers between the United States and other nations has opened American workers to unfair competition from low-wage countries.

The United States set deficit records with most of its major trading partners including a $12.1 billion imbalance with the 25-nation European Union, a $8.1 billion imbalance with Canada, the country's largest trading partner, and a record $4.8 billion deficit with Mexico.

[dennisw]

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[Willie Green]

At one time, it was widely believed that an import surplus improverished a nation because the difference between imports and exports had to be paidin gold, and the loss of gold was seen as a loss of national wealth.

Which was true.

If the goods and services available to the American people are greater as a result of international trade, then Americans are wealthier, not poorer, regardless of trade.

In this sentence, Sowell engages in gibberish and double-talk to confuse the issue.
Since abolishing the gold-standard, trade is now conducted with paper dollars, which are essentially IOUs. And while the value of those notes are permitted to fluctuate in the marketplace, the Trade Deficit still represents a net outflow of national wealth.

The Road to Productive Wealth

The only true key to wealth lies in production. While you can increase your own wealth at the expense of others, we all become wealthier when productive resources are increased. Greater wealth for our economy lies in increasing the quantity or quality of productive resources -- labor, capital, and natural resources. This is done by investing in education, capital goods, research and development, and technology.

What works for our economy, can also work for each of us. You can acquire wealth by education, buying productive capital goods, inventing a new product, and assorted other improvements in productive resources.

Under current trade policies, our domestic industries which create wealth are being undermined, and Americans are enjoying the illusion of wealth by going deeper into debt.

[dennisw]

Thanks fer nuthin' Mr. Deficits Don't Matter

[1rudeboy]

Economic activity in the manufacturing sector grew in November for the 30th consecutive month, while the overall economy grew for the 49th consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business^®.
Source

[1rudeboy]

Read my #24 and weep, Eeyore.

[Last Dakotan]

I take it you know little about manufacturing.

It is my life's work both in terms of education and experience. I'm not sure how to answer such a question.

In the past 3 hours I have sourced the production of a high volume upset die forging, advised a CNC machinist on what speeds and feeds to use in a stainless milling job, finished the design of a piece of factory automation, generated tool paths from a CAD model and planned the marketing of new products.

What would you like to know?

[1rudeboy]

Nothing more whether than when you write of manufacturing, do you write with regard to your narrow experience, or in general?

[thackney]

Economic activity in the manufacturing sector grew bump

[Mase]

Under current trade policies, our domestic industries which create wealth are being undermined

Yet, we produce and export more now than at any other time in our history.

.. and Americans are enjoying the illusion of wealth by going deeper into debt.

Yet, household net worth continues to increase - nearly doubling in just the last decade.

[untrained skeptic]

Yea, that pretty much sums it up.

Having a trade defict can simply mean that you have more money to buy other people's things than they have money to buy yours.

However it means that we are making the rest of the world richer by buying more of their goods than they are buying of ours. That's still not necessarily a bad thing.

It does mean that we need to take a serious look at why our domestic goods aren't competitive with imports or why we cannot produce enough goods here to meet demand at competitive prices.

[Last Dakotan]

do you write with regard to your narrow experience,

I take issue with your swipe that my experience has been narrow.

In my career I have worked in Shipbuilding, Off-highway equipment, recreational marine, consulting engineering, and consumer products industries.

[Mase]

How about equal access to the Chinese market as they have here?

How's our access to China today compared to 10 years ago? 20 years ago? 30 years? All that notwithstanding, are you saying you'd rather we had a protectionist economy like China? Do you envy their standard of living?

[BureaucratusMaximus]

"Let London manufacture those fine fabrics of hers to her heart's content; let Holland her chambrays; Florence her cloth; the Indies their beaver and vicuna; Milan her brocade, Italy and Flanders their linens...so long as our capital can enjoy them; the only thing it proves is that all nations train their journeymen for Madrid, and that Madrid is the queen of Parliaments, for all the world serves her and she serves nobody."

(Prominent Spanish official - Alfonso Nunez de Castro in 1675)

Very interesting.

[Last Dakotan]

..are you saying you'd rather we had a protectionist economy like China?

No, but rather that it is a folly to open our markets to competitors while allowing them to keep theirs closed.

[untrained skeptic]

For this reason, some countries seek to reduce their trade deficit by--

1. establishing trade barriers on imports,

That's a reasonable solution when other countries are dumbing goods on our markets and putting American workers out of work on a large scale.

There's likely some justification for tarrifs in some small markets, but we're sitting at 5% unemployemnt even with a huge number of illegal aliens working in the country.

If we apply tarrifs to products, who is going to manufacture them in the US? Are we going to import more labor from Mexico to make the products? Are we just going to raise prices and subsidize the income of a small group of people who benefit from those tarrifs at the cost to consumers buying those products?

2. reducing the exchange rate (termed devaluation) such that exports are less expensive and imports more expensive, or

Devaluing your currency is self imposed inflation. In China, where the government chooses what they think is good for the country, they can do that. Do it here and devalue people's life savings, and those politicians will be looking for new jobs, and likely facing insider trading charges because I don't suspect they would allow their life savings to be devalued in the process.

3. invading foreign countries with sizable armies. Invading countries because they can produce things cheaper than you can is called Imperialism.

[1rudeboy]

Yeah, it was a swipe. Let me rephrase: are you speaking narrowly, or generally?

[cchandler]

No, a trade association. I see the strength of American industry every day. My boss is in Hong Kong right now at the WTO talks, trying to level the playing field with the EU by eliminating or drawing down many of their agricultural subsidies. Production is alive and well in America, but companies and industries are consolidating rapidly. I don't see that as right or wrong/good or bad, it's just market evolution and adaptation. (I understand that it's easy to say that when I'm not directly affected by such mergers). The media loves to run stories about the death of the family farm because it's a human interest story. But the farms are still there, they're just owned by a co-op, a company or a corporation and are much more productive - thus benefiting the American consumer and the global strength of the American industry.

[hedgetrimmer]

In trade, its called reciprocity. Its something that Congress used to negotiate in trade deals. But now, since the WTO manages global trade, unconstiutionally for the United States, they don't believe in reciprocity. When "rich countries" ,like us, are dealing with a "least developed country" or "developing country" like China, we "rich countries" all must grant preferential treatment to them and expect nothing in return. This is a LDC bargaining chip at the Doha round this week. We must also build up their infrastructure with our tax dollars so our companies can outsource or offshore there. In fact, Rob Portman gleefully announced yesterday we are going to double our aid-for-trade to these countries, like China, which means our government is going to double the amount of our tax money they are lavishing on "poor countries" so that they can build even more infrastructure so even more businesses can leave.

[A. Pole]

"The only true key to wealth lies in production. While you can increase your own wealth at the expense of others, we all become wealthier when productive resources are increased. Greater wealth for our economy lies in increasing the quantity or quality of productive resources -- labor, capital, and natural resources. This is done by investing in education, capital goods, research and development, and technology."

I would make a correction by adding the some if not the most of services. For example medical services, banking, transportation, repair facilities, restaurants etc ... add to the wealth too. But only if they represent a proper proportion of the ecomomy.

[Willie Green]

Services do not create wealth.
They are an example of wealth transference.