Trade Imbalance?

by

John Wright

 

The Premier of the PRC, Wen Jiabao, is visiting President Bush to discuss, among other topics, the large and growing trade imbalance between China and the USA. Bush wants the PRC to float their currency, i.e. to not keep it artificially low in value compared to the dollar. This move would make Chinese produced goods more expensive in the USA and USA produced goods less expensive in China, so a move in that direction should reduce, at the least, the rate of flow of trade dollars to China. Maybe. Outsourced USA service and industrial jobs in China would cause USA corporations to experience increases in the flow of USA dollars to China to match the increased "value" of the wan, so as to pay the salaries and wages with the comparatively devalued dollars.

A second problem is that the Chinese are not allowing much in the way of USA goods into their country, which exacerbates the trade imbalance problem. There is nothing new there except that 20 years ago our purchase of goods made in China wasnít all that significant. Now it is. As we learned in the 1980ís and 1990ís, a similar problem with Japan resulted in the Japanese holding a vast amount of USA dollars (around $600 billion) and then buying all kinds of properties and businesses in the USA. The Japanese also became major holders of equities and were believed to have precipitated a very large one-day drop in our stock market in the fall of 1987. Maybe so, maybe not. One thing is clear and that is that large debt causes loss of control of your life, whether you are an individual or a country. Spend more than you earn consistently and sooner or later someone else owns your future Ö regardless of the interest rate!

I find it particularly interesting that our fascination with modernizing China through investments into modern factories there by USA based corporations is adding to our problems with dollars moving to China. It seems that our corporations are aiding China both in modernization and in dollar balances. Letís also realize that our corporations are pumping lots of cash into China now via outsourcing, not only for industrial production but also for white collar service jobs, i.e., computer programming. Does anything seem wrong with this picture? Uh, huh.

China is the new "sleeping giant." Give them a market economy and support in developing technology and they will, as I stated so bluntly in Destiny, eat our lunch, not only in the USA but in the entire region of the Far East. Anyone in business or government who fails to acknowledge that coming problem is either dishonest or "unbalanced." The task, then, is to understand what actions are the equivalent of shooting ourselves in the foot, and then to take immediate and strong measures to stop the process of losing ourselves economically and our markets in the Far East.

The sources of the problems are so obvious that they virtually scream their presence. First, the infamous free trade agreements must be ended with all nations. Then, outsourcing of USA jobs to other countries must be stopped dead in its tracks by penalizing any corporation that engages in that practice. Third, trade must be grounded in absolute balance of payments parity Ö no parity, no trade. If we are so hot, technologically, we will develop better products that will be demanded by the rest of the world. If not, we had better cut our losses and protect ourselves.

The only products we actually need from abroad are oil and certain other raw materials not found in the USA. The oil problem is in a category by itself, and we have stupidly allowed our oil dependence to continue instead of investing the necessary hundreds of billions of dollars here to implement alternative energy strategies. I wonder what kind of hammer is necessary to hit our "leaders" in the head to get them to grasp that essentiality. Going for more oil is stupid, whether we develop our own sources or buy it. The overriding point is that we have to reduce oil consumption both because it is an unrenewable resource and because excess use is a major contributor to global warming via carbon dioxide. As to other raw materials, trade parity will be easy to establish as the nations that have what we need also need our products, unless, of course, we stop making those products!

There are times I get a headache wondering how we can be so infernally stupid as to ignore the most fundamental fact of survival Ö tribes will always work exclusively to their own benefit if they have the power to do so. China does and will continue to do so. Let us continue our foolhardy adventures in India and, guess what, they will also eat our lunch. I think the corporate fools who are playing the short focus profits game are ignorantly reliving the last days of the British Empire. How can they not see the obvious? What level of USA citizen help will it take for our federal government to be levered into protecting our future against our corporations and our trade enemies?

Do I oversimplify? Consider this Ö all of our supposed trading partners have at particular times in recent history told us to bug off when they didnít want to play our global business game. And we canít when the shoe is on the other foot? Our short-term profit maneuvers are suicidal to our economy.

I issue this simple warning Ö the Far East belongs to China in the near future and there is almost nothing we can do about that fact, since we have been so naïve in our development of China. We deserve to lose due to our demonstrated stupidity. We are and we will. But for (%$&* sake, canít we at least close our market in the absence of trade parity? Is it that we canít produce to meet our needs? Wake up! There is no hidden, important agenda re world peace to justify what we are now doing.

Speaking of foreign policy, I note that President Bush continues his strategy of alienating our largest traditional allies, most recently with their exclusion from contracts to rebuild Iraqi infrastructure. This is a pissing contest, plain and simple, based on their negative stance about our going to war with Iraq and their refusal to help clean up our mess in the aftermath. Bush really doesnít get it, does he? Iraq doesnít mean anything to our wellbeing and it is a large cash drain. About the only way we could profit would be to steal all of Iraqís oil to meet our needs Ö perhaps that is the basis for us "going it virtually alone." If so, welcome the new era of the USA as a pirate! Of course, had we found the suggested weapons of mass destruction, our future taking of Iraqi oil to pay for the war and rebuilding costs would be somewhat more understandable. We didnít find any and we had no right to invade Iraq. We violated their national sovereignty. Now, anything we do to recapture costs will be rightly seen as theft.

Getting back to the trade imbalance issue, it is appropriate to look internally at an example we never think about in terms of trade Ö social security. Logically, we trade a portion of our dollars earned to support the retired folks today for the promise that we will be similarly supported when we are retired. That is trade, in that we invest our labor today for later gains. It works if conditions of parity are maintained. It fails when monies collected are diverted to other ends and when the population ratio of employed to retired people declines, either in numbers or in amounts earned per person relative to the cost of living. I think you all understand that this is another example of a major trade imbalance most accurately seen, as practiced, as a pyramid scheme. If outsourcing and immigration drive down our wages without a corresponding decrease in the cost of living, the absolute dollars available to future retirees will be smaller and of lower buying power per dollar.

Look to the future to see our fate if the average wage of ordinary USA citizens continues to fall relative to the cost of living, compounded by having fewer people work meaningful jobs on a percentage basis, due to continued automation. Note that major trade imbalances are a symptom that we are not growing internally, and that sooner or later we have to pay the piper. Note that outsourcing not only hurts us as individuals in the present but also in the future as we lose additional industrial and professional infrastructure and trained people to work the necessary jobs. We succeed only in eroding our tax base, and that implies higher personal taxes in the support of our government and likely fewer services.

I will conclude with this thought Ö we certainly do have some major imbalances in government and in our corporations, but the word trade is not the right adjective to describe them. Unwarranted pride, delusions of grandeur and absence of conscience seem far more appropriate. You signify your support of these ugly realities by voting to keep the same "leaders" in office, or by failing to vote. You give corporations incentive to continue their harmful practices by continuing to purchase their products.