Following March’s slight dip in the trade deficit, the “experts” hailed it as solid evidence that the falling dollar was beginning to have an effect on reducing the trade deficit. My response was that there was nothing statistically significant in the drop – that the trade deficit was still hovering in its range of $55-65 billion per month. I also predicted that it’d be back up in April.
The Commerce Department released the April data this morning. It’s right back up to $60.9 billion – no surprise to me or to anyone who understands the economic theory I’ve presented in Five Short Blasts. I’ve said this countless times but will repeat it again, since there are new people visiting this site daily. The falling dollar will have almost no effect on the trade deficit because it has nothing to do with the root cause of the deficit, or at least the deficit in manufactured goods, which accounts for two thirds of the deficit. Exporters to the U.S. will simply respond by cutting costs and prices in order to maintain their market share.
Rather, the trade deficit in manufactured goods is due to the gross disparity in per capita consumption between the U.S. and grossly overpopulated trading “partners.” They get free access to our healthy, high per capita consumption market while all we get in return is access to markets devastated by over-crowding and the resulting low per capita consumption. There is only one possible remedy: a tariff structure on manufactured goods that is indexed to population density – zero for countries with population densities equivalent to ours and progressively higher for nations with higher densities. This would maintain beneficial free trade – free trade in natural resources and free trade between nations of equal population density – while eliminating the parasitic feeding upon our market by nations who come to the trade table with a bloated labor force and nothing else to offer.
The article notes a healthy rebound in exports. The rebound in exports is an illusion – due to rising grain prices, not to any recovery in manufacturing, where the jobs are (or were). In fact, this supposed rebound really doesn’t even exist, because much of this grain is given away for free in the form of aid. Such aid is booked as an export at the current value of the grain, and the loss is taken elsewhere in the federal budget for foreign aid. So our trade deficit is actually much worse than the numbers from the Commerce Department suggest.
It’s impossible to overstate the devastating effect this trade deficit is having on our economy. Three quarters of a trillion dollars is drained from our economy every year. That’s enough money to employ 15 million people at a salary of $50,000 per year. It’s enough money to cover the cost of health insurance for every single person in America. It’s enough money to completely eliminate the federal budget deficit with plenty to spare toward paying down the national debt.
Instead, we continue to sell off American assets to finance this deficit spending. Without a change in trade policy to eliminate this trade deficit, we will soon be owned lock, stock and barrel – and controlled – by foreign interests. We’re rapidly approaching the point where the United States will continue to exist in name only. Will our next president have the guts to end the failed “free” trade experiment, walk away from the World Trade Organization and adopt the tariff structure that we so desperately need? I doubt it, but we can always hope. Without such action, Americans are doomed to a future of declining wealth and rising unemployment and poverty.