The Deficit America Has Forgotten — And Is Eviscerating the Middle Class

Dave Johnson

We can service each other till the cows come home but if we don’t start making more things here and selling them there more and more jobs will be lost, more and more communities devastated and our standard of living will continue to drop. Everyone is focused on the budget deficit. But here’s the thing: the trade deficit is the jobs deficit and the jobs deficit is the budget deficit.

The Trade Deficit

Before “The Reagan Revolution” America made things and sold them to the rest of the world. Since Reagan America borrows money to buy things made somewhere else. And since Reagan we’ve seen the whole game play out: wages stagnate, savings plunge, debt soars, growth slows all while wealth concentrates at the very top.

And it just goes on. The trade deficit last month was above forecasts, and a big jump from last year:

The U.S. trade deficit with China widened to $18.8 billion in compared with $16.5 billion in the same month last year. The government also revised the deficit in January to $47 billion from $46.3 billion.

The February monthly trade deficit fell, but only because the decline in exports was less than the decline in imports.

The Big Change

In the early 80′s conservative trade policies designed to pit American workers against low-paid, exploited workers in non-democratic countries transformed the United States from the largest creditor nation to the largest debtor nation in just a few years, and it has only gotten worse since then:

Democracy vs Thugocracy

America is supposed to be a democracy of We, the People. Democracies set up protections for their people that protect wages, rights, safety, dignity and the environment. Conservative “free trade” agreement allow companies to get around the borders of our democracy, pitting their employees against the exploited people living under thugocracies with few or no protections at all. This has created a “race to the bottom” for our wages and benefits. Of course our workers cannot compete against workers who are not able to fight for better pay and benefits. This is the reason we fought to build and preserve our democracy.

China

Instead of fixing our trade problems, we have gone back to the same old same old. Especially vis-a-vis China.

Alliance for American Manufacturing Statement on Latest Monthly Trade Figures

The monthly U.S. international trade deficit in goods and services was $45.8 billion in February. The goods trade deficit with China was $18.8 billion.

–Year over year, the 2011 trade deficit is running far higher than 2010. January-February 2010 clocked in at $74.3 billion, while the first two months of 2011 have already reached $92.7 billion.

–Year over year, the goods trade deficit with China is also running ahead of 2010. January-February 2010 totaled $34.8 billion, while the first two months of 2011 have already reached $42.1 billion.

–Of particular note is that China ($18.8 billion) now accounts for 70% of our overall monthly non-oil goods deficit ($27.0 billion).

Said Scott Paul, Executive Director of the Alliance for American Manufacturing (AAM):
“Washington has focused a lot on budget deficits this year, but scant attention has been paid to the trade deficit. That must change. The trade deficit serves as a drag on GDP growth and requires financing, just like any other debt. While only 9.5% of our national debt is financed by China, that nation is responsible for fully 70% of our trade deficit in non-oil goods.”

China, China, China

Over and over our trade relationship with China demonstrates so many things we are doing wrong in the world competition. Among so many other problems:

- We let them manipulate their currency rate which means their goods have a cost advantage of as much as 40% going out the gate, before other factors come into account.

- Their government subsidizes and promotes key industries. We don’t have an industrial policy.

- Their workers are not free to organize and push for better wages, benefits and working conditions. (Ours aren’t either, but are more able than theirs.)

- They restrict and otherwise discourage imports

- They follow “Buy China” policies, we do not have “Buy America” policies

- Etc., etc., etc.

The Trade Deficit Is The Jobs Deficit

Our trade deficit is our jobs deficit. When you close the factory we can’t make a living. When you move the jobs over there the jobs aren’t here. And the people who could have those jobs are collecting unemployment instead of paying taxes and buying cars, houses, food, clothes, saving etc.

American Prospect, The Plight of American Manufacturing,

Since 2001, the country has lost 42,400 factories, including 36 percent of factories that employ more than 1,000 workers (which declined from 1,479 to 947), and 38 percent of factories that employ between 500 and 999 employees (from 3,198 to 1,972). An additional 90,000 manufacturing companies are now at risk of going out of business.

Giant Sucking Sound

So we closed our factories (trade deficit) and shipped the jobs to other countries (jobs deficit) where they pay less and don’t protect the environment. Again, from The Plight of American Manufacturing,

Long before the banking collapse of 2008, such important U.S. industries as machine tools, consumer electronics, auto parts, appliances, furniture, telecommunications equipment, and many others that had once dominated the global marketplace suffered their own economic collapse. Manufacturing employment dropped to 11.7 million in October 2009, a loss of 5.5 million or 32 percent of all manufacturing jobs since October 2000. The last time fewer than 12 million people worked in the manufacturing sector was in 1941. In October 2009, more people were officially unemployed (15.7 million) than were working in manufacturing.

Millions and millions of good-paying jobs. Gone.

The Jobs Deficit IS The Budget Deficit

People with jobs pay taxes. People with jobs don’t collect unemployment benefits. A huge component of our budget deficit is the result of unemployment, much of it caused by the trade deficit.

Of course there is the core component of the budget deficit that was caused by tax cuts for the wealthy, the huge increase in the military budget and the interest on the borrow for these. But the big increase since the financial crisis is due to the recession and restoring our manufacturing base addresses much of this. People with good manufacturing jobs pay mortgages and buy houses and cars and shop at stores and make the economy work. And when thrry buy things made in America the money stays in America.

What We Can Do

This is from a year ago — yes, a year, with nothing done: It Is Time To Put Our Foot Down: Ten Steps We Can Take To Stop Closing Factories And Eliminating Jobs,

Here are just some steps that We, the People can take to start turning this around:

- A border tariff on imports to remove the price advantage of goods produced by exploited, underpaid workers.

- A border tariff to remove the price advantage of goods produced in ways that harm the environment.

- A border tariff on goods from countries that are not democracies, to remove any pricing advantage gained from not allowing people to vote and set rules that benefit themselves.

- A border tariff on goods from countries that restrict workers from organizing to improve their wages and working conditions, to remove any pricing advantage gained from not allowing workers to bargain. (America currently doesn’t meet this standard.)

- Remove tax benefits and instead impose tax penalties and fines on companies that close factories here. Don’t let it be profitable to do this!

- Increase taxes on the big monopolistic companies to remove the advantages that help them destroy America’s smaller, regional and local businesses — the very job creators we need.

- Increase income taxes on high incomes to reduce the incentive to pursue short-term windfalls instead of long-term interests. Make it take a long time to accumulate a fortune. Making a fortune is great but it should be a reward for helping our economy and society, not destroying them.

- Break up the “too big to fail” Wall Street firms that wrecked the economy. And get the money back — all of it.

- Explore the use of Eminent Domain to keep factories in communities and workers in the factories.

- Formulate and follow a national economic/industrial strategy to build a new green manufacturing economy

Those are just a few things we can do.

And, to close, Frank Sobotka:

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