U.S. Trade Deficit, 2003
Will Corporate Greed and Our Insatiable Appetite
for Foreign Goods Sink the U.S. Economy?
James F. Gauss
March 20, 2004
Several years ago, as a financial advisor, I wrote a newspaper column in which I stated that Americans where going to have to get use to a lower standard of living. Why? Because of the rise of the third world and former communist country work-forces who would work for a fraction of U.S. wages, resulting in a rapid transfer of jobs abroad. To compete and keep their jobs, many Americans would have to be willing to work for a lot less with fewer benefits. Of course, the majority of U.S. citizens who have worked hard for years to achieve their current financial status were and are unwilling to take such huge cuts in wages and benefits. Therefore, they find themselves with the unhappy alternative of no job at all or a service job that pays a fraction of what they use to make and offers few, if any benefits.
And, in today’s highly competitive global marketplace, one thing the majority of present-day American companies cannot be accused of is putting patriotism ahead of the almighty greenback. If there is money to be made, profits to be gleaned and stockholders to satisfy, then damn the patriotism and the American citizen and set sail for China, Mexico, or wherever they can take advantage of cheap labor, low taxes, and offer little or no fringe benefits. For example: While a computer programmer in the United States might earn $56/hour, his or her well-trained counterpart in China earns $12.50/hour (7). A Wall Street financial analyst making $250,000 could easily be replaced by one in India for $20,000 (7). As a whole, U.S. manufacturing employees who earn $12-15/hour or more are finding themselves competing for the same work that a Chinese or Mexican worker who is paid $1-2/hour.
While the average wage for lower and middle class workers barely kept pace with inflation, if at all during 2003, America’s corporate fat-cats have been gorging themselves with riches at the expense of the American consumer and the future well-being of America. While the average U.S. household struggles to make ends meet on two substandard incomes, the median cash bonus for America’s CEOs in 2003 was $605,000 or 26% higher than in 2002 (7). The median weekly wage for the average U.S. worker last year was a paltry $620.
As a result, through this combination of corporate greed, the voracious appetite for more wealth by those already excessively wealthy and the insatiable craving of the average hourly wage-earning American to meet their needs and wants through cheap foreign goods, the U.S. trade deficit has been pushed to yet another record high of $489.4 billion (10). Actually the deficit for goods was $60 billion higher but was reduced by a corresponding surplus in services. Already for the first month of 2004, the monthly deficit has set a new record high of $43.1 billion (12). If that pace were continued for the next eleven months, the trade deficit would easily surpass one-half trillion dollars.
So, what is the big deal about the skyrocketing trade deficit and why should you be concerned? First, we must take a look at the last forty or so years of U.S. trade history. During the decade of the 1960s the United States ran a trade surplus every year. The last trade surplus for the country was in 1975 when the U.S. had a trade surplus of $12.4 billion. When President Ronald Reagan inherited the Jimmy Carter recession in 1981, the deficit soared to a peak of $151.7 billion by the end of 1987, the year of the October stock market meltdown. By the end of 1991, despite a mild recession, the deficit had fallen dramatically to a manageable $31.1 billion. But the downward trend was quickly reversed under eight years of Clintonomics which saw the trade deficit mushroom over eleven times the 1991 value to a whopping $375.4 billion by the time William Clinton left the presidential office early in 2002 (13).
On another front, it’s been 25 years since the U.S. signed a MFN (Most Favored Nation) trade agreement with China. Many such agreements have followed, including the one signed by former President Clinton on October 10, 2000, granting China “permanent normal trade relations” (PNTR). Each successive agreement with China, as well as the controversial North American Free Trade Agreement (NAFTA) of January 1, 1994, was suppose to be equally advantageous for all parties concerned. However, as far as the United States is concerned, these agreements, as they have played out in reality, have largely been one-sided in favor of our trading “partners”, particularly China.
While our trade deficit has been escalating annually, China has been running a trade surplus, such as the $30 billion one in 2002 (2). As the United States and its citizens are weighed down by horrendous debt, unfavorable trade agreements, a sluggish to recessionary economy and a never-ending “War on Terror”, the Chinese juggernaut continues full steam ahead, gaining in economic and military strength.
As the American economy staggers along under an oppressive national debt of $7.127 trillion (as of March 20, 2004) or an estimated $24,274 for every U.S. resident, China has an insignificant foreign debt of only $170 billion or 2.4 percent of the U.S. debt load [Note: The U.S. debt does not include the trillions of dollars in federal pension plan or entitlement program liabilities]. During the Clinton Whitehouse years, according to Michael Hodges, creator of the Grandfather Economic Report, while politicians were trumpeting the supposed news of annual budget surpluses, the federal government was actually creating $2.8 trillion in new debt for Americans to absorb. This is more debt than was accumulated in the entire history of the country prior to 1990. And when Congress was boasting about federal budget surpluses of $557 billion over 1997-2001 (but pre-September 11, 2001), the reality was that the federal debt had increased $438 billion---a more than one trillion dollar discrepancy. For more details, visit Hodges’ extensive web site at: http://mwhodges.home.att.net.
There are, perhaps, a handful of American economists who would argue that the trade deficit as a percent of our Gross Domestic Product (GDP, an estimated $10.3 trillion in 2003) is of little concern. However, pure common sense would reason that a half-trillion dollars leaving the country every year, never to return, will not produce real prosperity nor maintain it, especially for those taxpayers who struggle daily for their little sliver of it.
To look at it another way, the trade deficit for 2003 of $489.4 billion would be equivalent to 15.7 million U.S. workers making $15/hour or $31,200 in 2003. There are currently a lot of unemployed or under-employed American citizens who would love to have such a job and income.
Our trade disparity continues to grow annually with many countries. The top four countries we run annual deficits with (in descending order) are: China, Japan, Canada and Mexico (8), all of whom we have basically one-sided trade agreements that negatively impact the U.S. worker and U.S. economy. Of particular concern is the ever-expanding trade imbalance with China. It was not too long ago that we either ran a trade surplus or miniscule deficit with China. In 1993, Clinton’s first year in the Oval Office, the China deficit was $22.8 billion---growing but not especially worrisome. However, every year as Clinton signed new trade agreements with China on her terms, sold sensitive U.S. military and scientific technology to the Chinese, and U.S. corporations fell all over themselves rushing into China at any cost, the China deficit soared 367% under the Clinton Whitehouse (11, 12). With little controls or incentives for changing the trend, in 2003 the U.S. consumer (including corporate and government entities) bought $124 billion more from China than China bought from America. Already, January, 2004 trade numbers suggest that the China deficit will continue to grow to possibly $138 billion in 2004 (12).
Why should this be of much concern to the average American? While America is on a strong economic downturn, weighed down by ever-increasing consumer, corporate and government debt, China’s economic and military strength is churning ahead full speed. China is the fourth largest country in land area, right behind the United States, and has a population of 1.3 billion people. Although its standing army of approximately two to two-and-a-half million is slightly larger than the current U.S. forces, it has a potential pool of military troops that exceeds 375 million men age 15-49, of which the U.S. Central Intelligence Agency estimates that 206 million are fit for military service (2). As America’s “War on Terror” has escalated the U.S. military budget to $400 billion (FY2004), thus dwarfing China’s expenditure of $56 billion (FY2002), our economy and current indebtedness can least afford it. China can and is rapidly expanding its military might and technology thanks to the annual influx of billions of U.S. dollars, much of which goes directly to Chinese military-backed and owned corporations.
In 2002, the most frequent destination for China-made products was the U.S. (21.5%) and another 18% to Hong Kong, much of which is re-shipped to the United States (2). Our increasing and insatiable appetite for cheap China-made goods has, in part, resulted in the permanent loss of millions of manufacturing jobs in the U.S. (4). Since March, 1998, 3.3 million such jobs (or 19%) have been lost, likely forever (3). Of the estimated 9 million Americans unemployed in 2003, 22 percent were out of work for six months or longer (7). Another 4.5 million only work part-time because they cannot find fulltime work. “Temporary layoffs in a recession increasingly are becoming permanent job eliminations,” reported Parade contributing editor, Lynn Brenner (7). Most job gains, when they are reported, now are in the service industry where an astounding 80-plus percent of U.S. jobs are now service related (3).
While the American economy and wages have stagnated, consumer spending has continued unabated, with consumer household debt mushrooming to slightly over $2 trillion as of November, 2003 (9). U.S. consumer debt (short-term and intermediate-term credit extended to individuals, including car loans, but not real estate mortgages) has doubled in less than 10 years. When home mortgages are included, personal debt balloons to nearly $9 trillion (9).
“You cannot be the wealthiest country in the world and have all your countrymen be up to their neck in debt,” commented Howard S. Dvorkin, president and founder of Consolidated Credit Counseling Services, Inc.
Furthermore, this “excessive credit expansion does not create true prosperity in the long run,” said Greg Kaza, Executive Director of the Arkansas Policy Foundation, “but can contribute to an asset bubble that takes years to unwind (3).”
Another economic measure of America’s indebtedness is the “Current Account Deficit” which rose 12.7 percent over 2002 levels to $541.8 billion in 2003 (4) or about 5 percent of GDP (5). “…the current account report is considered the best measure of a country’s international economic standing because it tracks not just goods and services reflected in the government’s monthly trade reports but also investment flows between countries and unilateral transfers, including U.S. foreign aid payments (4).”
Another way to look at it is, that this deficit represents over one-half trillion dollars in U.S. financial assets (stocks, bonds and short-term deposits) and their earnings that are being transferred to foreigners and thus escape U.S. taxation (5). The cumulative effect of a current account deficit of $500 billion would mean an estimated taxable income loss of $302.5 billion by 2014 due the transfer of assets to foreign owners (5).
“As a result of its massive bill for imports,” wrote Dean Baker, co-director of the Center for Economic and Policy Research, “the United States is currently borrowing more than $550 billion a year from abroad (approximately 5.3 percent of GDP)… This borrowing is paid for by selling off U.S. assets. If the trade deficit remains at its current level, within a decade foreigners will own the entire stock market, much of the government debt and many of our homes (1).”
Extravagance has gone deep into the bone marrow of US society,
the real objective of the US government’s foreign policy can
only be how to maintain and further raise the extravagance level
of the US society as a whole for the longest possible period of time.
Su Jingxiang, People’s Daily Online, February 3, 2004
Information Sources
1. Bursting Bubbles: Why the economy will go from bad to worse by Dean Baker, May 9, 2003. Center for Economic and Policy Research, Washington, D.C.
2. The (CIA) World Fact Book: China, December 18, 2003. Central Intelligence Agency, Washington, D.C.
3. Clinton Job Losses by Greg Kaza, Executive Director, Arkansas Policy Foundation. Published March 4, 2004, National Review Online.
4. Current Account Deficit Swells to Record: Broadest measure of trade hits $541.8 billion in ’03. The Associated Press.
5. The Current Account Deficit and the Budget Deficit: Is $600 Billion Missing? by Dean Baker, February 2, 2004. Center for Economic and Policy Research, Washington, D.C.
6. Gross External Debt Position, September 30, 2003. Bureau of Economic Analysis, United States Department of Commerce, Washington, D.C.
7. How Did You Do? By Lynn Brenner, March 14, 2004. Parade Publications, New York, New York.
8. Top Ten Countries with which the U.S. has a Trade Deficit. U.S. Census Bureau, Foreign Trade Division, Washington, D.C.
9. U.S. Consumer Debt Grows at Alarming Rate: Debt Burden Will Intensify When Interest Rates Rise by William Branigin, January 12, 2004, Washington Post, Washington, D.C.
10. U.S. International Trade in Goods and Services, December, 2003. Economics and Statistics Administration, United States Department of Commerce, Washington, D.C.
11. U.S. Trade Balance With China. U.S. Census Bureau, Foreign Trade Division, Data Dissemination Branch, Washington, D.C.
12. US Trade Deficit Swells to a Record $43bn for Just One Month by Charlotte Denny, March 11, 2004. The Guardian, Guardian Newspapers Limited.
13. U.S. Trade in Goods and Services-Balance of Payments (BOP) Basis, 1960 thru 2003. U.S. Census Bureau, Foreign Trade Division, Washington, D.C.
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James F. Gauss is a free lance writer, frequent public speaker and the author of Christians Confronting Crisis, We the People, Volumes I, II (historical document series) and other books. He may be reached at ampatriot@charter.net.
Copyright 2004, James F. Gauss. All Rights Reserved. Permission granted by the author to reprint or quote from this article for personal use only, provided full citation is provided. No permission is given for the use of this article in any format for publishing, profit or resale.
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