To readers of this column, what follows may be a little like preaching to the choir. However, the continuing foreign trade deficits being registered by the U.S. are of ongoing concern and bear repeated scrutiny until (or if ever) they are reversed or brought to moderation.
In 2008, the United States ran a nearly $700 billion trade deficit with the rest of the world. Then, as global recession hit and as currency exchange rates became more favorable relative to the U.S. dollar, the trade deficit reduced to $375 billion in 2009. In 2010, with economic conditions improving, our foreign trade deficit had, by September, already exceeded the total for 2009. These are huge numbers – the kind politicians throw around with seeming impunity and the kind that are often lost on the average citizen who is just too busy trying to make his own financial ends meet.
So let’s try to make these numbers a little more realistic. First, we can establish that whenever we run a trade deficit we are importing more goods and services than we are exporting. When we are a net importer of goods and services, we become net exporters of our currency and our wealth.
To make the deficit numbers more meaningful, let’s put the trade deficit into a daily perspective. In 2008, we exported $1.9 billion each and every day to the foreign nations we trade with; in 2009, the daily number fell to $1.0 billion; and through the first three business quarters of 2010 we are exporting currency at the rate of $1.4 billion per day. After decades of exporting currency at this rate, even the wealthiest of countries would eventually feel the effects.
The dynamics, politics and economic doctrines that govern the mechanics of foreign trade are very complex. However, the net effects of decades of making the U.S. dollar our principal export are far simpler. The average household is having a tougher economic time than it did 20 or 30 years ago. Maybe it’s because they don’t (or can’t) save enough. This, in turn, may be because the jobs once held by that household may now be performed by someone in Mexico, Canada, China, Japan or India.
Within the context of trade deficits, the good news is that the U.S. is a net exporter of services, which include licensing fees and royalties from exports of intellectual property (IP) such as software and other products. The bad news is that net imports of petroleum, petroleum products and a host of durable and nondurable goods keep our net trade in deep deficit status. The danger of this is that trade deficits are financed by debt. Debt, in and of itself, is a useful economic tool, but when it is overly indulged in, it can become harmful. Also, when countries and cultures that espouse differing political, economic or religious ideologies hold a large part of your debt, trouble starts to loom on the horizon – or manifests itself through political bullying, shrinking spheres of influence or even the financing of terrorism.
As manufacturers, the metal-forging industry needs to collectively fight to keep every job and all the expertise it can in this country, not as an issue of financial security but as an issue of national security.