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Mushrooming U.S. trade gap raising concern
Sunday, May 16, 2004
chart attached
Acres of empty cargo containers stacked outside the Port of Oakland serve as reminders that U.S. consumers continue to gorge themselves on imports. The containers stand empty because the quantity of goods flowing into the port swamps exports, a trend that has economists wondering how long such a lopsided exchange can last.
Those concerns bubbled to the surface last week after the Commerce Department reported a $46 billion trade deficit in March.
The imbalance, the largest in a string of such deficits over many years, occurred despite the fact that the dollar fell against the euro, Europe's common currency, which helped boost exports to record levels.
The trade gap widened for one simple reason: Imports rose even faster. Soaring oil costs and a surge of products from Asia left the nation in a deeper hole than ever.
Harvard economist Kenneth Rogoff believes the nation must start changing this trend. "The U.S. has to start waking up and consume less and save more,'' he said.
As the world's largest market -- and a nation with an irrepressible culture of consumption -- the United States is a magnet for imports.
Not all experts agree that the yawning trade gap stems from over- consumption at home. The debate is clouded by charges and countercharges about unfair trading.
Some economists say the U.S. trade deficit is a sign of health in the world economy because it allows nations such as China to industrialize and join the ranks of the developed countries.
Others complain it is an artificial phenomenon, the result of Asian nations keeping their currencies cheap to promote exports and make U.S. products pricier, hurting U.S. workers and firms.
Still others insist that major trading partners in Asia and Europe maintain trade barriers that keep out U.S. goods.
Most experts agree that buying so much more from the rest of the world than we sell creates financial risks that could come back to haunt us.
The trade deficit is financed by a complex set of transactions in which foreign investors put money into U.S. plants, stocks and bonds, repatriating some of the dollars they get for their goods.
Unsustainable situation
The question is, how long can this dollar recycling persist, and what would happen if it ended abruptly?
Catherine Mann, an expert with the Institute for International Economics, a nonpartisan think tank in Washington, D.C., said that while the persistent trade deficit isn't good, the forces creating the imbalance will keep things stable for the foreseeable future.
In recent years, much of the recycling of dollars back into the United States has involved China, Japan and other Asian nations buying Treasury debt to finance the U.S. budget deficit.
Those countries will continue to pump dollars back into the United States because they want Americans to keep buying their products.
The federal budget deficit, for its part, pumped money into the American economy during the recent economic downturn, which helped consumers to continue buying, among other things, imports.
Asian Treasury purchases have fueled the trade imbalance. As Federal Reserve Chairman Alan Greenspan noted in a March 2 speech, "extraordinary purchases by Asian central banks and governments, largely by those of Japan and China'' have helped keep the dollar expensive relative to their currencies.
This makes their goods cheaper in the United States, while making U.S. exports dearer.
Co-dependency
Over the long term, it is not healthy either for the United States to continue its credit-financed import binge or for the Asian nations to continue buying dollars to prop up their export-driven economies, Mann said.
But none of the parties can abruptly stop this co-dependency,' Mann said, adopting the term psychologists use to describe a situation in which one person supports the self-destructive behavior of another.
"Co-dependent relationships can go on for a very long time,'' she said.
Michael Dooley, an international economist at UC Santa Cruz, believes this co-dependency will probably wind down slowly because neither party can afford the consequences of an abrupt change.
"In the hopeful view, there is a smooth transition,'' Dooley said, in which the growing Chinese economy creates wider affluence, so more U.S. exports can be absorbed.
Access to cheap goods
In the meantime, he views the trade deficit as a deal that gives U.S. consumers access to cheaper goods, while supporting China's transition from an agrarian to an industrial state.
"Free trade is good for everyone, on balance,'' Dooley said. But he that the benefits and costs are not distributed equally.
"Since college professors can buy things more cheaply from China, I'm better off,'' Dooley said, a comment that could apply to most white-collar workers.
"If you're a laborer in the United States who competes fairly directly with Asian labor, then you're in trouble.''
The assumption that the trade deficit also costs the United States jobs is what alarms economists like Peter Morici, a business school professor at the University of Maryland.
Morici estimates that the persistent trade deficit has cost the nation upwards of 1.3 million jobs at a time when the Labor Department says 8.2 million are looking for work.
"We have a consumer economy, and when imports satisfy consumer demand, that puts limits on domestic growth,'' Morici said. "This is the primary reason we have an economic recovery which has, until very recently, produced meager job growth.''
Influence on election
The debate isn't just academic. Trade is emerging as a central issue in the presidential election campaign.
Democratic challenger John Kerry seized on last week's trade deficit announcement to attack the Bush administration for failing to reverse the currency manipulations that subsidize imports and discourage exports.
"How much higher does the trade deficit need to be before George Bush starts enforcing our trade rules and fighting for American jobs?'' Kerry asked.
Bush campaign spokeswoman Tracey Schmitt said the administration has been studying the Chinese currency situation since 2001 and has taken more action against unfair imports than its predecessor.
"The president is committed to fair and free trade,'' Schmitt said, accusing Kerry of "political opportunism and newfound support of economic isolationism.''
While the long-term trade deficit outlook hinges on everything from politics to macroeconomic forces to American consumer habits, one report from the front lines of the trade wars reflects the frustration of U.S. firms that try to sell into Asian markets.
At Mooney Farms in Chico, 45 employees dry tomatoes in the sun, bottle them in olive oil and sell them under the Bella Sun Luci brand name in Safeway and Costco.
Mary Mooney, who runs marketing for the family-owned firm, sits on the board of the California Council for International Trade. She said exports to Canada and Mexico represent about 8 percent of the firm's sales.
She has tried -- but failed -- to sell to Japan. The reason Mooney Farms couldn't get in was because it uses sulfur in the drying process, and because the Japanese consider the tomato a vegetable, not a fruit.
"You can bring dried fruit into Japan with 2,000 parts per million of sulfur, but they decided the tomato was a vegetable,'' said Mooney, adding, "There's a trade barrier there. It's totally lopsided. You can't see it. It's just unfortunately there.''
E-mail Tom Abate at [EMAIL PROTECTED].
Please let us stay on topic and be civil.-Home Page- www.cia-drugs.org
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