Geithner Calls for Trade Balance

April 23, 2009

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.