With a trade deficit of $677.1 billion in 2008, the U.S. has completed its 33rd consecutive year with a trade deficit which, since the last surplus in 1975, is now a cumulative $9.13 trillion (in constant 2005 dollars). Although the trade deficit declined for the second year in a row, from $753.3 billion in 2006 to $700.3 billion in 2007 to $677.1 billion in 2008, the decline last year was due entirely to the recession. Were it not for the dramatic decline the last two months of 2008 caused by the collapse of the global economy, the 2008 trade deficit would have been at least $717 billion. And, since the recession began in December of 2007, it’s likely that the entire year’s deficit, not just the last two months, was affected by the global slowdown. It’s possible that the 2008 trade deficit would have been a record without it. The fact that the deficit declined is good news. The fact that the decline was accomplished by trashing the economy is not.
Consider the ramifications. GDP per capita (a good measure of Americans’ purchasing power) was $38,300 in 2008. Every dollar of a trade deficit erodes this figure. That’s not an editorial comment, it’s how the government calculates GDP. In 2008, the trade deficit reduced per capita GDP by $2,213. Without the trade deficit, GDP per capita would have been $40,513. That’s a loss of $8,852 per family of four in 2008.
But the story is much worse than that. The net worth of the average American family is $115,569 less than it would be otherwise, thanks to the cumulative $9.13 trillion trade deficit since 1975. All of this erosion of net worth is the result of 33 years of downward pressure on wages and income caused by the loss of manufacturing jobs. In 2008, the trade deficit in manufactured goods was $434.9 billion. A good rule of thumb is that two thirds of the cost of a product is labor. So that’s a cut of $289.9 billion from America’s payrolls. If we assume a cost of $50,000 per year for wages and benefits, that’s a loss of 5.8 million jobs.
Kind of makes the jobs goal of the Obama stimulus package – 3.5 million jobs – look pretty lame, doesn’t it? We could restore nearly twice as many jobs without one additional dime of federal spending by simply fixing our trade policy and restoring a balance of trade. Free trade shills will holler that this will not only drive up prices but will also start a catastrophic trade war. Baloney. Yes, prices of products that are currently imported would go up some. But your wages would go up even more along with the surge in demand for labor. But a destructive trade war? Wouldn’t happen. Virtually all of the trade deficit could be eliminated by targeting tariffs on manufactured goods (not on food or oil or other natural resources) at only ten badly overpopulated nations that have been preying on our economy: China, Japan and Germany chief among them. Would the other 200-some nations retaliate? Of course not. If anything, they’d support us and adopt a similar trade policy to address the same problems in their nations.
Could your family use another $115,569 in your savings account? I think most would be happy to have it. If so, call, write or E-mail your senators and congressmen today and urge them to fix our broken trade policy.