The Trade Deficit Keeps Draining Money From Our Economy

Dave Johnson

Another month and another terrible trade deficit report. Why is it that DC elites who profess to care so much about deficits say so little about our worst deficit? The trade deficit drains money from our economy, lowers our wages and forces us into an ever-lower standard of living.

Trade Deficit Rises 14%

BusinessWeek: Trade Gap in U.S. Widens More Than Forecast,

The trade deficit widened more than forecast in March as American demand for crude oil, computers, automobiles and televisions propelled imports to a record.

The gap grew 14 percent to $51.8 billion, the Commerce Department reported in Washington today. The median estimate of economists surveyed by Bloomberg News called for an increase to $50 billion. A 5.2 percent jump in imports, the biggest in more than a year, swamped the 2.9 percent gain in exports, which also reached a record.

… Imports from China climbed 12 percent in March after plunging the prior month as the Lunar New Year holidays extended into early February. The March trade gap with China widened to $31.5 billion from $28.1 billion, today’s report showed.

A trade deficit of $51.8 billion in one month (half of that with China alone) is an annual rate of $621.6 billion, which is 4% of our currently $15,461.8 billion GDP. So we’re currently bleeding out at a rate of 4%. Not good at all, and we’ve been bleeding out like this for decades.

This is called a trade deficit, but really it isn’t. Continually selling to us and and not buying from us is not “trade.” This continual bleeding of money our of our economy is the reason we are losing our jobs, factories and entire industries. This is the result of a different kind of deficit — a democracy deficit. We, the People have not been able to stop this, even when all polls show that the people want this to stop. Because there are powerful interests getting rich(er) off of it.

Destroying Our Economy And Standard Of Living Since Reagan

Here is the formula since Reagan:

1) We open our borders to imported goods made in places where people don’t have a say, so they don’t have good wages or environmental protections. We send our factories over there and import “cheap goods” into the country.

2) This sends dollars over there, and they don’t buy back from us (that would be actual trade), so they accumulate the dollars as they drain our economy.

3) Then we borrow those dollars back to fund the tax cuts for the rich. Our rich get richer, the rest of us get poorer, while they gain more and more power over us. The tax cuts force us to cut back and cut back on schools and infrastructure and other things that make us competitive

4) Meanwhile the imports from over there are used to break the unions and drive wages and benefits down over here.

5) Bob’s your uncle, here we are where we are today.

Let’s Fix This

Here are a few suggested approaches that will help erase this trade deficit:

Manufacturing Policy and Strategy: We need a national policy and strategic effort to nurture key strategic industries that bring jobs and exports. Other countries do this, we do not. If you think this doesn’t work, look at China and Germany.

Currency Manipulation Legislation: The House of Representatives should pass bipartisan legislation to deter China’s currency manipulation. This bill has passed the Senate, and has 60 Republican co-sponsors. But Wall Street lobbyists oppose this bill so Speaker Boehner refuses to bring it to the floor for a vote. The bill could be brought to a vote if enough members of Congress would sign a “discharge petition” but no Republicans have done so — not even any of the 60 Republican cosponsors of the bill.

WTO Trade Complaints: The Obama administration has filed a few trade complaints but there is an entire system of trade cheating that must be stopped.

Change Tax Laws That Encourage Offshoring: Current tax laws actually encourage offshoring of jobs and production! Instead taxes should encourage bringing jobs and factories back the the US. Also, remove the offshore exclusion and just tax those companies holding trillions of dollars offshore to avoid the taxes.

Democracy Protection Tariffs: When people have a say – democracy – the people say they want good wages, benefits and environmental protections. These are “costs” and when we let in good made in countries where the people do not have a say — and do not have good wages, benefits and environmental protections — of course the goods made there cost less, and we are making our own democracy into a competitive disadvantage. We should charge a democracy tariff as such goods enter our country so they are less competitive with goods made here, and use the funds to subsidize goods made here in world markets. This encourages these countries to let their people have a say, because there is no advantage. And if they do not we use the funds to nullify any economic advantage their repression of rights might being them.

Scott Paul, Executive Director of the Alliance for American Manufacturing (AAM), released this statement:

“The widening March trade deficit is bad news for the economy. For one thing, the expanding trade deficit means that growth in GDP will be lower. Surging imports from China indicate that we are falling into bad habits again—and that China is as well. Beijing has not meaningfully adjusted the Yuan’s value against the dollar this year. The large bilateral trade deficit, along with China’s announced trade surplus, show that China’s currency is still far below a market-based rate.”

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