Geithner Calls for Trade Balance

Speaking at the Economic Club of Washington on Wednesday, U.S. Treasury Secretary Tim Geithner took on the trade deficit and essentially admonished the rest of the world to do its part to bring it down.

Speaking to the Economic Club of Washington, Geithner said it was essential to find a better-balanced model for world growth that relies less on U.S. consumers as economies bid to climb out of the steepest downturn in decades.

“We must set ourselves on a path so that one country, or group of countries, does not consume in excess while another set of countries produces in excess,” he said.

Geithner’s remarks are part of a concerted campaign by the Obama administration to push developing countries to stimulate domestic demand and cut reliance on exports for growth.

Geithner will repeat the message on Friday when he hosts a meeting of G20 officials after a regular gathering of finance ministers and central bankers from the Group of Seven major industrial powers.

This is a good sign that the Obama administration “gets it” when it comes to the role of the trade deficit in ruining the finances of the U.S. and ultimately collapsing the whole global economy.  It’s a good sign, but I’m under no illusion that it’ll work.  This is the same tactic employed by every administration for decades, although never at such a high level.  In the past, U.S. trade representatives have chastised nations like Japan and China to lower trade barriers.  In response, they’ve been patted on the head and sent on their way, leaving their foreign trade counterparts rolling in the aisles with laughter.

But then came the global financial melt-down.  No one’s laughing now.  And now it’s the Treasury Secretary and the President himself speaking of the need for the rest of the world to stimulate their domestic economies and stop relying on exports. 

But exactly how will this happen?  Will Americans consume less because growth in the economy grinds to a halt, because their purchasing power is permanently eroded by unemployment?  Or because they will mysteriously choose to start saving more, resisting the force-feeding of debt needed to restart the economy?  Or will some mechanism prod American consumers to choose domestically-made products over imports?  How will other nations be able to stimulate domestic demand at the same time that their export factories are closing down?

There’s no question that the administration understands the problem.  The question is what they will do when the rest of the world, especially overpopulated nations that are utterly dependent on their parasitic trade relationship with the U.S., proves unable to stimulate domestic demand or unwilling to fall on the sword to help us out.

12 Responses to Geithner Calls for Trade Balance

  1. Mark A. Hall says:

    No worry Pete…

    If these “other” nations follow the same precept outlined by many in our academic community, they won’t have to worry about stimulating domestic demand, because ALL of their workers will be attending college being retrained for the “high education-attainment industries.

  2. […] Read the original post:  Geithner Calls for Trade Balance […]

  3. mtnmike says:


    Yet another good article. Your questions near the end will not be answered by those who don’t field fast balls.

    There are problems that occur in each of our lives that lack palatable answers. The unemployed Michigan auto worker who is losing their home to foreclosure does not consider that remedy palatable. As they should not. This is yet another example that compounding interest has no link to the underlying economy.

    There are many countries that I could use for an example, but I’ll chose Japan.

    According to Geithner, Japan needs to float their own boat. Of course, that is impossible and not a palatable solution to the Japanese.

    The country of Japan is smaller than California with 3.5 times the population of California. They import 40% of their food, have literally zero harvestable natural resources, claim one of the worlds oldest per-capita populations, host 10% of the worlds active volcanoes and support the whole shebang with a high imbalance of trade.

    As I stated, problems that go unattended for 40 years have the propensity to become problems without palatable answers.

    We have reached the end of an era that was falsely ushered in and will violently be ushered out.

  4. Randy says:

    I’m with mtnmike on the monetary system being the root of all problems. I don’t even care about trade policy. I don’t even recognize the nation state any longer. As for prospect of war, there has been one going on for decades, the pyramid war:

    [Urban financial institutions + “Trusts” + Federal Agencies] versus [Farmers + Small Businesses + Small banks + Populist politicians + Trade Unions]

    I’ll leave it up to you to decide which team resides in the apex and which team resides in the base of the pyramid. Hint: The team in the base has been getting royally screwed over.

  5. Randy says:

    I don’t care about the automobile industry because there is nothing to be done there. If you want to help the environment, take the specs for a mid 80’s Mercedes-Benz and there is your green car: one that lasts for 300,000 miles…not the current insanity of fool consumers flipping “green” cars every couple of years thanks to debt inflation.

    Want an industry worth doing? Try biology…no amount of mass factory education is helping because the problems are hard. Its supposed to be a shining example of the new knowledge industries. Problem is why bother? Startup costs are significant and the knowledge will only be stolen and shoved into the labor arbitrage machine. Theft rules, and no we don’t need any more help from the lawyers.

    • Pete Murphy says:

      Randy, first of all, thanks for stopping by. Regarding the trade deficit, I strongly encourage you to research the role the deficit has had in the demise of the American economy. You may say that nation states don’t matter any more, but you need to realize that there are vast differences between the many nation states of the world, and population density is one of the them. These differences force overpopulated nations to become parasitic, predatory economies, essentially exporting the consequences of their overpopulation – especially unemployment – onto the U.S., making Americans pay the price for their mistakes. Or consider this, regarding the equation you provided: American farmers and small business have borne the brunt of the consequences of the trade deficit. And speaking of farmers, if the WTO has its way and forces America to drop all farm subsidies and other protections for American farmers, you can kiss farming goodbye in the U.S.

      My impression is that you believe that we’d all be much better off consuming less. While no one here is an advocate of wasteful consumption, you must understand that a certain level of consumption goes hand-in-hand with a high standard of living and quality of life. Also understand that per capita consumption and per capita employment are inextricably linked. Drive down per capita consumption and unemployment and poverty will rise proportionally. The only way to reduce total consumption (which would reduce environmental degradation and resource depletion), while still allowing people to maintain a high standard of living is to reduce our population, both here in the U.S. and especially in nations that are many times more densely populated than our own.

      Again, please reconsider your views on trade. There’s lots of information on this blog that will make for a good place to start. You might start with the “‘Free’ trade?” page. I also encourage you to read the posts in “The Theory Explained” category. (See the list of categories on the right.) Start with the first post – Part 1.

  6. Mark A. Hall says:

    How ironic is it that in a report released Tuesday, April 21, the I.M.F. estimated that banks and other financial institutions faced aggregate losses of $4.05 trillion in the value of their holdings as a result of this economic crisis.

    The total U.S. non energy related trade deficit for the time period 1999 thru 2008 equals $3.99 trillion.

    This time period also corresponds with the implementation and active engagement of our trade agreement with China.

  7. Mark A. Hall says:

    In addition, for the time period 2000-2007, the total growth rate of U.S. Household Debt Outstanding exceeded the growth rate of U.S. GDP by $4.244 trillion.

    • Pete Murphy says:

      Great observation, Mark! I like to go back even further, to 1975, the date of our last trade surplus, and point out that the cumulative trade deficit since then, at $9.2 trillion, until very recently was also very close to our national debt. None of these are mere coincidences.

  8. mtnmike says:

    Mark and Randy,

    Here is another show stopper. Since 1930, government has grown 4 times faster than the economy. Social spending has grown 14 times faster than the economy.

    Even the slowest person could deduce that these trends are unsustainable.

  9. ClydeB says:

    It matters not one bit whether it is personal debt or national debt, if it goes unpaid there must be consequences. We’ve allowed our elected representatives to return to the pig trough time after time to spend vast sums of money that they did not have to provide for programs and projects that were not needed. Now we have a new wave of spenders PLUS an administration that has the notion that our big problem is that we’ve spent too slowly in the past. As I’ve said before, “buckle up”.

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