The American people should not be so blase about the size of the trade deficit. We are living far beyond our means.
The U.S. trade deficit rose to a record $69.9 billion in August, driven by high oil prices, a growing trade gap with China and rising consumer demand for imported goods from antiques to appliances, the government said yesterday.
The trade deficit was 2.8 percent bigger than in July, despite strong growth in exports, led by sales of agricultural products and aircraft, the Commerce Department reported. American companies sold $122.4 billion worth of goods and services overseas in August, an increase of $2.7 billion over the previous month.
Even if we could somehow magically replace oil with another energy source that would eliminate only $20.8 billion of the $69.9 billion August 2006 deficit.
The total value of imports rose by 2.4% to $192.3bn in August, while exports rose by 2.3% to $122.4bn.
During August, the politically charged trade deficit with China rose by 12.2% to a monthly high of $22bn. The is on course to top last year's record figure of $202bn.
The $22 billion deficit with China represents over 31% of the total trade deficit. Take it away and the US would still have a trade deficit that is far too large. But part of that is due to other East Asian countries trying to keep their currencies just as weak as the Chinese Renminbi currency so that they are not overwhelmed by Chinese imports. But they also keep their currencies weaker so that they can export to the US.
The politically sensitive deficit with China widened to $22 billion, exceeding the previous record of $20.5 billion reached in October 2005. Thursday's report showed that imports from China increased to an all-time high of $26.7 billion in August. U.S. exports to the Asian nation fell to $4.8 billion.
Remember when all of America's business leaders converged on Congress en masse in May 2000 to argue for granting China status as a Permanent Normal Trade Relations (PNTR) trade partner? This was supposed to open up a massive market for US goods. All it did was allow capitalists (e.g. Wal-Mart's bosses) to automate and speed up the indebting of America to the world.
Why are people living so far beyond their means? Does the influx of foreign money drive down the cost of borrowed money so much that people run up more debt? Or has the development of mechanisms to aggressively market credit cards and other debt instruments worked on human weaknesses to buy now and worry later to lure an increasing percentage of the populace to live beyond their means? Has capitalism become the enemy of prudent living and sound personal economics?
Democrats, hoping to take control of the House and Senate from Republicans, contended the August deficit figure underscored the need for a change in trade policies being pursued by President Bush and the Republican Party.
They said the administration has failed to crack down on unfair trade practices of other nations including China's currency manipulation and its widespread piracy of U.S. goods.
Just a reminder to the Democrats: Democrat Bill Clinton was instrumental in opening the US market to Chinese goods.
The Dow Jones index of major US shares swept above the 12,000 level for the first time on Wednesday but eased back to close short of the landmark level.
The index rose as high as 12,049.51, boosted by falling US inflation, oil and petrol prices and ongoing optimism about corporate earnings.
The US economy added 51,000 jobs last month, far below analyst expectations, in another signal of slowing growth.
Last month's figures contrast with job additions of 188,000 in August and 123,000 in July.
One reason the capitalists can be optimistic about how things are going even as many workers are doing worse is that an increasing portion of all economic output is going to corporate profits.
One way to comprehend what is happening is to look at the split between how much of the economy is won by profits and how much by wages.
The share allotted to corporate profits increased sharply, from 17.7% in 2000 to 20.9% in 2005, while the share going to wages has reached a record low.
If the shift of revenue from wages to profits is due to higher productivity of smart holders of capital then this trend is not so bad. But I wonder if it is due in part to flooding the US labor market with imported labor and I wonder if the higher profits are coming via shifting of external costs onto the rest of us. How much of those profits are paid for by the middle class with taxes that fund for the health care, crime handling, and other costs of the cheap imported labor?
|Share |||By Randall Parker at 2006 October 18 05:43 PM Economics Trade|