The Trade Deficit Worsens in November

http://www.usatoday.com/money/economy/2008-01-11-trade_N.htm

Contrary to predictions by economists of a declining trade deficit, driven by a rise in exports due to the falling dollar, the deficit worsened dramatically in November.  A month ago, after release of the October data, I predicted that the falling dollar would have no impact.  Now we have proof. 

This article does cite a 0.4% rise in exports.  However, as is always done by “blind trade” advocates, they conveniently omit the fact that imports of manufactured goods rose by more than 5%, from $38.6 billion in October to $40.6 billion in November.  The net result is a further decline in U.S. manufacturing.

Contrary to what economists have been saying, the falling dollar isn’t going to make any significant difference in this situation. The trade deficit is not driven by cost. If it were, we wouldn’t have huge deficits in manufactured goods with wealthy countries like Japan and Germany. Rather, the deficit is driven by the disparity in population density (and corresponding disparity in per capita consumption) between the U.S. and so many of our trade “partners.”

The only way to reverse the trade deficit in manufactured goods is through a tariff structure that is indexed to population density. Free trade in natural resources is fine, as is free trade between nations of comparable population density. But it is a guaranteed loser when trying to trade with over-populated nations like Japan, Germany, China, S. Korea and so many others.

Pete

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