The Commerce Department released the December trade figures yesterday. The good news is that the deficit shrank a bit in 2007 from the record in 2006. The bad news is that it’s still a staggering $712 billion. Don’t look for much further improvement. The monthly data has been hovering in the $58-63 billion range for quite a while now.
Almost all of the focus in this article is on our trade deficit with China. But the size of the deficit with China should be a surprise to no one. What did we expect when we applied to China the same trade policies that were already a proven failure in the rest of the world. Of course our deficit with them dwarfs all other countries. They’re one sixth of the world’s population. Take our deficit with Japan as an example. Japan is only one tenth the size of China (in terms of population), but our deficit with China is less than three times the deficit with Japan. In terms of per capita deficit in manufactured goods, our deficit with Japan is three times as bad as the deficit with China. Our per capita deficit in manufactured goods with Germany is twice as bad as it is with China. (Note that both Japan and Germany are much more densely populated than China.) In terms of per capita deficit in manufactured goods, China is only number nineteen on the list of the top per capita deficits in manufactured goods.
The article also observes that, in spite of the fact that the yuan has risen over 15% in the last 2 years, prices of Chinese imports hasn’t changed. Also, in spite of the fact that the dollar has plunged 24% against the world’s currencies and 37% against the Euro, exports have risen only 12%. None of this should come as a surprise either because our trade deficit is not about costs. It’s about the disparity in population density between us and these other countries. They will simply cut their prices right along with the falling dollar in order to maintain market share. The key factor will remain unaltered: that we are giving free access to our market to countries who have no market (or markets badly stunted by over-population) to offer in return. The only way to rectify this situation is through a tariff structure on manufactured goods that is indexed to the population density of our trading “partners.” Failure to take such a measure only assures that the host-parasite relationship between the U.S. and over-populated nations will persist. The global trade welfare state will be sustained.