March Trade Deficit Better — Why This Matters More Than Budget Deficit

Dave Johnson

The trade deficit fell to “only” $38.8 billion in March. This could mean that manufacturing is starting to shift from China (good) — or it could mean our economy is slowing and we just aren’t buying as much as we would have (not so good). It is also because we are importing less oil (really good). The balance of trade is important because trade is how our country makes a living as a country. This huge continuing deficit matters, because it is literally draining money and jobs (and factories and industries) from our economy. (Funny how the 1%ers complain about budget deficits while they promote trade deficits.)

The March Report

The March trade deficit numbers were released today by the Census Department’s US Bureau of Economic Analysis. (It takes a bit of time to gather all the data, so we’re only seeing March numbers now.)

So here are the main lines from this report:

  • The U.S. international goods and services deficit fell from $43.6 billion in February to $38.8 billion in March.
  • The U.S. goods deficit with China fell from $23.4 billion in February to $17.9 billion in March.

According to the Alliance for American Manufacturing the $5.4 billion drop in our trade deficit with China “was almost exclusively due to a drop in imports of toys, games, and sporting goods; apparel; and, footwear.” Also AAM’s Scott Paul points out that the March trade deficit with China is always the year’s low point, so this might just be a blip not a trend.

“The U.S.-China data, looking back over more than a decade, shows March to regularly be the smallest or next-to-smallest bilateral monthly deficit in each year, so I’m not optimistic that it represents any sort of trend moving forward.”

The story here is that we still have a huge trade deficit, particularly with China. USA Today explains: U.S. trade deficit falls to $38.8 billion,

The U.S. trade deficit narrowed in March for a second month as the daily flow of imported crude oil dropped to the lowest level in 17 years. … Overall, the deficit shrank to $38.8 billion, an 11% drop from February’s $43.6 billion, the Commerce Department reported Thursday.

… A smaller trade gap can boost economic growth as U.S. companies earn more from overseas sales while consumers and businesses spend less on foreign products.

Trade Deficit Hurts Economy And Jobs

Note that last line — it’s important to get this. A trade deficit hurts the economy and jobs. Not only does it mean money is draining from the economy, but it also means our working people are pitted against low-wage workers. A trade deficit enables companies to cut wages. It is the primary reason everyone’s pay has been stagnant or falling since the end of the 70′s — when the balance of trade turned from surplus to deficit.

Now, look at this chart:

See if you can spot the relationship. Hint: Trade deficits enabled employers to squeeze workers. Wages decoupled from productivity increases, and the result is that today 40% of Americans make less than the 1968 minimum wage, had it kept pace with productivity growth.

And people wonder why they feel such a squeeze.

Who Benefits From Trade Deficits?

Another chart. See if you can spot the relationship between this chart and the charts posted above:

This chart shows that financial-sector and non-financial-sector compensation used to rise together, but in the early 80′s they decoupled (The “Reagan Revolution.”) Financial-sector compensation took off, while non-financial-sector compensation did not.

This is why the middle class is disappearing. When we allowed American companies to close factories here and open them there, and then ship the same goods back here to sell in the same stores, we made American workers afraid they would be next and afraid to make waves. So they accepted lower wages and longer hours. People are even afraid to take vacations and sick days. This enabled a few at the top get fabulously rich. This was the cause of the “hollowing out” of the middle class, the extreme income wealth inequalty, and the resulting economic stagnation.

Who benefits from the trade deficit? The 1%: the Mitt Romneys, the Wall Streeters, the corrupters.

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