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Ask Not for Whom the Trade Deficit Tolls. It Tolls for the American Worker and America’s Future.
Raymond Richman, 5/12/2011

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced last Wednesday that total March exports of $172.7 billion and imports of $220.8 billion resulted in a goods and services deficit of $48.2 billion, up from $45.4 billion in February. March exports were $7.7 billion more than February exports of $165.0 billion but March imports were $10.4 billion. The trade deficit has the effect of reducing our Gross Domestic Product in March by $48.2 billion and represents a drag on employment of 482,000 workers.

The Pollyannas in Washington and New York greeted the data by saying and writing that increased exports and increased exports mean jobs. None of them said that imports increased even faster and that increased imports means a loss of jobs.

For the three months ending in March, exports of goods and services averaged $168.4 billion, while imports of goods and services averaged $215.3 billion, resulting in an average trade deficit of $46.9 billion, a drag on employment of 469,000 jobs.  If the trade deficit is extrapolated to the remainder of the year, we can expect that the trade deficit for 2011 will be in the neighborhood of $562.8 billion, a drag on employment of 5.6 million jobs. 

In February and March, 2011, the following group of selected countries recorded trade deficits as indicated, in billions of dollars. In the third column, we estimate the 2011 trade deficit based on the numbers in the first two columns. In the fourth column, we estimate the number of jobs that would be created if trade were balanced at the level of imports from each.

Trade Deficit and Loss of Jobs
Country March
(billions)
February
(billions)
Annual Deficit
(billions)
Lost Jobs
China $18.1 $18.0 $216.6 2,160,000
OPEC $10.8 $9.4 $121.2 1,212,000
Germany $4.6 $3.3 $47.4 474,000
Mexico $6.2 $5.3 $69.0 690,000
Japan $6.1 $5.2 $67.8 678,000
Venezuela $3.0 $2.1 $30.6 306,000

If trade were to be balanced, it would create up to 5.52 million jobs mostly in manufacturing, arresting the deindustrialization of the U.S. and restoring the labor force to full employment.

It must not be thought that it is only the rise in the prices of oil imports that is responsible for the current trade deficit. The following table shows the categories of U.S. exports and imports in billion of dollars during the three month period, January through March, 2011.

Jobs Lost Per Year to Trade Deficits
Year Workers
1997 -108,000
1998 -166,000
1999 -264,000
2000 -379,000
2001 -364,000
2002 -421,000
2003 -494,000
2004 -609,000
2005 -714,000
2006 -759,000
2007 -702,000
2008 -699,000
2009 -375,000
2010 -496,000

It must not be thought that it is only the rise in the prices of oil imports that is responsible for the current trade deficit. The following table shows the categories of U.S. exports and imports in billion of dollars during the three month period, January through March, 2011.

Trade Deficit by Product Category
Category Exports Imports Surplus (+)
Or Deficit (-)
Foods, feeds and beverages 5.9 3.9 +2.0
Industrial supplies incl. oil 39.1 35.9 -5.8
Capital goods 12.4 20.7 -8.3
Automotive vehicles 5,4 12.3 -6.9
Consumer goods 1.9 13.9 -12.0
Other goods 0.1 0.0 1.0

One should not be surprised at the deficit on capital goods.  High tech American companies are  reported to have ten employees abroad for every one they employ in the U.S. Apparently manufacturing high tech products cannot be done economically enough in the U.S.

Why have we been so complacent while the trade deficits cost millions of manufacturing jobs, caused wages to stagnate, and income distribution to worsen. Our fellow economists are ideologues. They believe in free trade. We, too, believe in free trade when there are no barriers to the movement of capital, labor, and goods. The U.S. Constitution prohibits the states from imposing such barriers. So the only place in the world where the conditions that make free trade a practical policy is within the U.S.

The vast majority of economists have embraced globalism and free trade, a combination that is de-industrializing the U.S. and strengthening our potential enemies, all at the expense of the American worker. The salaries of American economists have sky-rocketed while the wages of the average workers has stagnated or declined.

We have proposed single-country-scaled tariffs whose rates increase as the trade deficit increases and decrease as the deficit is reduced. We believe that the scaled tariff conform with current rules of international trade. We believe it is a policy that all countries plagued by serious chronic deficits should employ. It does not affect our trading partners with which we have balanced trade as a general revaluation does. We should note that while the dollar has fallen fifty percent or more against the Euro there has been no tendency for trade with the Euro-zone to become balanced and no tendency for our trade deficit with Germany to diminish to an acceptable level.

Given our serious unemployment, the current deficits with the countries listed above are intolerable. Given our serious budget deficits, the yield of the temporary scaled tariffs should be welcome.

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  • [An] extensive argument for balanced trade, and a program to achieve balanced trade is presented in Trading Away Our Future, by Raymond Richman, Howard Richman and Jesse Richman. “A minimum standard for ensuring that trade does benefit all is that trade should be relatively in balance.” [Balanced Trade entry]

    Journal of Economic Literature:

  • [Trading Away Our Future] Examines the costs and benefits of U.S. trade and tax policies. Discusses why trade deficits matter; root of the trade deficit; the “ostrich” and “eagles” attitudes; how to balance trade; taxation of capital gains; the real estate tax; the corporate income tax; solving the low savings problem; how to protect one’s assets; and a program for a strong America....

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  • In Trading Away Our Future   Richman ... advocates the immediate adoption of a set of public policy proposal designed to reduce the trade deficit and increase domestic savings.... the set of public policy proposals is a wake-up call... [February 17, 2009 review by T.H. Cate]