Posted on 05/22/2006 5:23:22 PM PDT by A. Pole
"March trade deficit shrinks,” said the headlines about two weeks ago, when the Census Bureau released the government’s latest monthly report on the nation’s trade accounts. To their credit, neither the journalists who wrote up the trade figures stories nor the specialists they quoted went overboard portraying the results as good news. All economic statistics, they noted, tend to bounce around in the near term, and the deficit is still running significantly ahead of last year’s gargantuan record level.
At the same time, even this sober consensus on the March trade figures represents too rosy a view of the nation’s intensifying trade crisis and of its darkening economic future. The devil that emerges from the details of the monthly trade report points unmistakably to continual weakening in most of the nation’s productive and innovative sectors. Worse, a worm’s eye view of the trade figures shows just how far America is from turning the situation around.
As emphasized by USBIC’s initial analysis of the March trade figures, the month’s improvement stemmed largely from a shrinkage of the nation’s oil deficit. Yet oil was not the only bright spot. The service surplus rose 13.19 percent, to $4.72 billion and the surplus in the "Other Private Services” subsector – which generates most of the nation’s high-paying infotech and professional services jobs - widened by 3.24 percent, to $4.5 billion. At this point, however, the good news comes to an abrupt halt.
The March deficit in manufactured goods, the biggest individual component of the nation’s trade picture, jumped 11.76 percent, to $49.98 billion. Moreover, the manufactures deficit for the first three months of 2006 is running six percent ahead of its level for the first three months of 2005.
Lest anyone think that the manufacturing trends are being driven by labor-intensive goods like apparel and consumer electronics, USBIC’s new Manufacturing Trade Index shows ongoing deterioration in the capital-intensive sectors comprising the core of any advanced, high-income industrial economy. This measure of 50 high-value manufacturing sectors (at the six-digit level of the North American Industry Classification System) registered a March trade deficit of $13.30 billion - 7.09 percent higher than February’s $12.42 billion. And even though the high-tech services surplus was up in March, the high-tech goods deficit positively exploded - by 76.43 percent, to $2.74 billion.
An even more vivid and troubling picture of U.S. industry’s competitiveness problems results from looking at American manufacturing’s biggest export winners. You’d think that the sectors selling the most to the rest of the world would be the sectors likeliest to lead the nation out of its trade crisis and back to a sustainable trade balance. After all, the most successful exporters presumably are those industries that turn out goods of exceptional quality and value, that best understand foreign markets, and that are most skilled at overcoming foreign trade barriers. You’d also think that these sectors would be especially successful at defending their own shares of the U.S. market against imports. Yet the detailed deficit figures show that many of these industries are struggling with foreign competition, too.
For example, of the twenty U.S. industries that exported the most in March, 2006, only eight even ran trade surpluses that month - semiconductors, aircraft, aircraft parts, aircraft engines and engine parts, basic organic and inorganic chemicals, plastics and resins, and general purpose industrial machinery. And only two sectors ran March surpluses of more than $1 billion - aircraft ($3.17 billion) and aircraft parts ($1.17 billion).
Of the eight super-exporters that ran surpluses in March, only five expanded their surpluses that month - semiconductors, aircraft, aircraft parts, general purpose machinery, and basic inorganic chemicals (which saw a small deficit turn into a comparably small surplus). With the exception of aircraft, aircraft parts, and semiconductors, however, all of these March surplus totals were less than $500 million.
The story for trade balance changes between March, 2005 and March, 2006 is similar. Five of the eight surplus industries expanded their surpluses over the last year, with basic inorganic chemicals improving from a $50 million deficit to a $160 million surplus.
Of the 12 big exporters that ran deficits, however, ten sank further into deficit from February to March, 2006 - autos, computers, computer parts, broadcast and wireless communications equipment, pharmaceuticals, iron and steel, medicinal and botanical substances, heavy-duty trucks, telephone apparatus, and miscellaneous auto parts (where a $30 million dollar surplus turned into a $150 million deficit).
Even more disturbing, in eight of these 12 sectors, the monthly deficit increases were in the double digits. And in absolute terms, seven of the 12 ran March deficits greater than $1 billion, topped by an eye-popping $9.3 billion in autos and light trucks.
Meanwhile, on a year-on-year basis, ten of the 12 big export industries running trade deficits also saw the deficits worsen. The only exceptions were construction machinery (where a $330 million deficit shrank to $140 million) and other plastics products (where the improvement was even less impressive from a smaller base - $21 million to $20 million).
The 20 biggest exporting industries represent many of the highest value sectors of the American economy - leaders in productivity, quality, and innovation. For good measure, they’re the industries invariably touted when U.S. leaders talk about America’s trade policy successes. The U.S. economy, moreover, large as it is, represents only about 30 percent of the world economy. Yet fewer than half of these 20 industries sell to the rest of the world more than their foreign competitors sell to the United States. And most of these surplus industries are barely in the black.
Other than USBIC’s research on rapidly rising import penetration rates throughout domestic manufacturing, it’s hard to imagine stronger evidence for the utter failure of that recent U.S. trade policy. Washington’s numerous recent trade deals have neither created major overseas opportunities for competitive domestic industries nor protected them against predatory foreign trade practices like subsidization, dumping, and intellectual property theft. If only the President and most members of Congress gave more than politically expedient lipservice to this major problem.
until we repeal the minimum wage the trade deficit will only continue to grow.
Export a million US lawyers, we have a vast surplus.
No wait, there are already plenty of crooked thugs running much of the third world already....
get back to us when it's $0.75 to 1.00 EU.
What’s So Wrong With A Trade Deficit?SourceCurrent policies have resulted in massive US trade deficits with the rest of the world. These trillions of dollars lost to other countries have come back to purchase our assets, major companies, and even whole industries. These are empirical facts. Yet there does not appear to be a consensus as to the magnitude or consequence of the damage of these trends.
The reasons for this range from the philosophical to the practical. * * * “Free market at all costs” ideologues cannot fathom that we are disadvantaged when other countries don’t play by agreed upon rules. Furthermore, the success of status quo investment depends on continued liquidating of assets to support present consumption.
It would be helpful to somehow measure the damage being cause by the amount of trade deficits – to distinguish between “bad” and “horrendous” trade deficits. For example, during the past 10 years, the net change in our GDP was an increase of $5.0 trillion, 70% of which was consumer spending which would be ok if this was spent on American made products (which it was not) - yet our trade deficits during that time amount to $3.6 trillion – 72% of the net increase in GDP. During the previous 10 years, that percentage was only 27%.
Currently, we are running trade deficits at a rate that is nearly equal to our gains in GDP. In other words, for every dollar we “grow our economy,” we are sending almost all of that dollar abroad in exchange for mostly perishable consumer goods.
Based on these facts, there should be no argument about whether this issue demands immediate careful attention and planning for resolution. From our present policy * * * we cannot hope to restore our economic and national position as a true independent world leader - nor we will we be even able to support ourselves without foreign imports and foreign lending.
if we can't match the low salaries paid elsewhere... we will lose those industries.
If we can't unburden our industries with intrusive regulations that foreign companies don't have to deal with... we will lose those industries.
It's simple really.
You seem to think lowering blue collar wages will salvage the looming disaster...What about white collar salaries...I've read that plant managers in China make 10-13 thousand a year...
If we're going to try to be competitive, that's the way we'll have to go...
I am more intereted in my own current account balance than I am in the arbitrary calculations of the wealth of nations.
Of course, my car will lose value over time, but I will gain value in using it every day.
Trade is good, lack of trade is bad.
Same crap I heard when Reagan was President..
All of our trading partners are trying to protect their high value added manufacturing sectors to some degree or another.
We need a congressional inquiry on why US firms can't compete.
site = sight
Coming from a non-economist-- That's the national debt, now who do we owe that to? Foreign govt's? B/c they buy US T-bonds? You mention mortgages.. I'm a little lost. Could you just give a 3 line explanation. Thanks
I think he's referring to household debt. See the above Fed PDF file.
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