Tuesday, July 12, 2011

The trade deficit and economic recovery

One thing I know for sure.  A Nation's economy can't survive forever with a trade deficit.  Eventually, the currency flow to and from other nations has to balance out or the economy in the nation that continues to ship out currency will wither and die.  Hello!  If you disagree with that assessment I'd love to hear the explanation for how a Nation can indeed continuously acquire more debt for the purpose of increasing it's own citizens' standard of living...forever.

Here is a site to track the trade deficit.  link   

Contrary to common un-wisdom, the trade deficit does matter.  The cash spent on foreign goods and services does not end up in an American taxpayer's paycheck except for the small portion of value included in shipping and distribution costs.

If an American consumer purchases a foreign manufactured product the domestic retailer (such as Walmart or the Mercedes dealer) gets some business, but the bulk of the value of that product is earned offshore.  The foreign workers earn their salary and their government takes a portion of their wages as taxes to fund  government programs and invest in infrastructure.

If that same American consumer were to purchase a domestic product or service than the only losers would be the dock workers who unload containers full of foreign goods.  The benefit is that American workers would then earn the paychecks and could pay their bills and generate local, state and federal tax revenue.

If the Government gave everyone a stimulus check and all we did was run to the nearest appliance store to buy a foreign-made HDTV, then it would stimulate only a very small portion of the economy temporarily and there wouldn't any internal economic momentum built up. The money would be shipped offshore instead of rolling around from one American paycheck into another.

I think the trade deficit is a huge problem for the USA. We have become too accustomed to a standard of living that is propped up by cheap imports, but in doing so we have decimated entire industries and much of the manufacturing base and this partially explains why we have become indebted to the tune of some 14 trillion dollars. We expect the government to somehow create jobs, but when the government borrows huge sums of money to try to jump start the domestic economic engine, bargain-hunting American consumers hurry to spend the stimulus on foreign imports. It provides a temporary high in the standard of living, but weakens the economy for future generations of American taxpayers who will live out their days chained to debt accumulated so their parents and grandparents could enjoy a higher standard of living than they deserved, given their relative productivity in the global economy.

The guideline for a trade policy should be no tariffs on raw materials, but there should be a levelling of the playing field for manufactured products and services commensurate with the policies of whichever Nation with whom we trade.  The trade deficit is a harbinger of our Nation's standard of living in the future. Disregarding it is a display of greed and shows lack of concern for the future of the USA.

As for consumers, we should try to support domestic businesses when a choice exists.  That is one reason why my wife and I always take our family vacations in the USA, purchase domestically produced automobiles, and look for products that are made in our State and in the USA when shopping.  In the end, the trade deficit is not just the fault of politicians.  The main reason for the trade deficit is that American consumers have been short-sighted in their quest to get more for their money right now and the heck with the kids' future prospects.

The American economy will continue on the slide downward until we find ways to reverse the trade deficit.           

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