Heres A Deficit To Worry About

Dave Johnson

Washington is in a Fox News tizzy about budget deficits. But even though the budget deficits were clearly caused by tax cuts for the rich, huge military spending increases and the effects of the lack of jobs, ideas for fixing those are the very things that are “off the table” in DC’s discussions. If DC wants to worry about a deficit, let me suggest this one: Bloomberg: Trade Deficit in U.S. Unexpectedly Widens,

The U.S. trade deficit unexpectedly increased in June to the highest level since October 2008 as a slump in exports exceeded a decline in shipments from overseas.

The gap widened 4.4 percent to $53.1 billion from $50.8 billion in the prior month, Commerce Department figures showed today in Washington. The deficit exceeded all estimates in a Bloomberg News survey of economists in which the median was $48 billion. Exports declined the most since January 2009.

And the usual suspects are lurking in the numbers, China and oil. (Oil imports dropped but imported oil is a big component of the problem, and always a drain on our economy.) Politico: U.S. trade deficit widens as China gains

The goods deficit with China increased to $26.7 billion in June, a cause for concern for the Alliance for American Manufacturing as China continues to gain ground on American industry.

“A rising trade deficit is not the prescription for job creation in America,” said Scott Paul, the group’s executive director. “The June trade deficit exceeded virtually every estimate and is further proof that our economy is falling behind.”

Paul called on the administration to pressure China into letting its currency float on the open market, which would increase its value against the dollar. A stronger Chinese yuan would make China’s goods less attractive to American buyers.

Why does this matter so much? June’s Rotten Trade Numbers Mean Weaker Q2 Growth,

While this news is bad for its own sake, it will have negative ramifications on the already weak second quarter GDP estimate.

… It’s getting harder and harder to see where a recovery is going to come from. We already know that consumer spending has been weakening. The federal government will soon join state and local governments with austerity measure to cut spending. Now we see that net exports are declining. With all of the other three corners of the economy weakening, it may be up to business investment to carry growth. Yet faced with slowing economic activity, firms’ spending could begin to decline as well.

The New York Times, in an editorial today, Where Will Economic Growth Come From?, drives the point home that trade has to be balanced to restore the economies of the world,

In 2009, China led efforts to help the global recovery, investing heavily in infrastructure and boosting consumer spending, but today it is taking the opposite tack and trying to combat inflation, which is running at 6.4 percent.

To keep its goods cheap, it has allowed its currency to rise only about 6 percent against the dollar since June 2010, even as the dollar has plunged against other currencies. Last month, the I.M.F. called on China to help global growth by letting the currency appreciate more rapidly, which would make Chinese goods more expensive around the world and give a break to competing manufacturers.

China has so far resisted that advice. It lashed out at economic mismanagement in Washington after the Standard & Poor’s downgrade, which could potentially reduce the value of its $1.1 trillion stash of American Treasury bonds. Rather than berate Washington, it should abandon its currency manipulation. …

The burden of global growth cannot be placed on China alone. Germany has the third-largest trade surplus in the world, after China and Japan, sapping growth in its European neighbors.

So we have a terrible trade deficit that is draining us of funds. We owe everyone money because we have fallen for “free trade” nonsense. Companies move our factories out of the country and past the borders of the benefits of our democracy, making democracy a competitive disadvantage and forcing our workers into a race to the bottom. As incomes stagnate then drop, demand in the economy dried up, forcing layoffs.

And what is the DC-preferred solution? (I mean, other than ever more tax cuts for the wealthy?) Even more trade deals that will make the jobs/wages/trade deficit problems even worse! Of course! For example, here is an op-ed just today in DC’s Politico, by Republican Senator John Thune, pushing for more of what has gotten us into this mess. Blocking trade deal is blocking jobs,

Under the Panama agreement, American grain exports are estimated to increase by more than 60 percent, and automobile exports would go up by 43 percent.

Exports to Colombia would increase by almost 14 percent overall, including large increases in machinery, chemical products and agricultural goods. Exports to South Korea would jump by 25 percent or more as tariffs on U.S. products are eliminated.

Yes, agriculture will benefit, and that is good. We will export a few more cars to Korea – also good. But. But this is really one more corporate-written opportunity to move our factories beyond the borders – and therefore beyond the wage, safety, environmental and other protections of our democracy. And this is killing us. It was our democracy that made us prosperous in the first place. The free trade deals are just extracting that prosperity from us, for the benefit of a few. That is the opposite of democracy.

“Free Trade The Root Cause Of All These Problems”

Ian Fletcher yesterday, at Huffington Post, It’s the Free Trade, Stupid, (go read the whole thing, please)

One point seems largely to have been missed in recent weeks, amid all the excitement over the Federal budget and the sovereign-debt crises in Europe: free trade is largely the root cause of all these problems. So let’s trace the causation for a minute.

[. . .] The underlying lesson is the same in our case and theirs: free trade causes trade deficits and therefore debt. The free market, on its own, will neither limit the accumulation of excessive debt nor redress the excess once it has been created. Government is eventually forced to step in, to solve a crisis it could have largely avoided if it had not embraced free trade in the first place.

Dear DC, If you want to worry about a deficit, please start worrying about our trade deficit.

 

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