Trade Deficit

The trade deficit is the dollar value of the excess of the cost of imported goods over the dollar value of exported goods.  It is the major component of the Balance of Payments deficit, which adds the dollar value of financial transfers and services performed by foreigners (i.e., trips taken abroad by Americans) to the trade deficit. 

The trade deficit has exploded from $100 Billion annually a decade ago to almost $700 Billion annually, or more than 6% of the Gross Domestic Product.  Much of the cost of financing this deficit is being met by recycling dollars borrowed from abroad and lending them back to the United States, which increases its total indebtedness to foreigners.  The remainder is being financed by rapid increases in the domestic money supply by de facto counterfeiting by the Federal Reserve to offset the continuing drain from our economy of our dollars to pay for imports.  The USA's foreign trade deficits are also magnified by various export barriers such as the European union's 28 percent import tariff on goods purchased from non-member countries which reduces the amount of  U. S. exports. For fair trade that results in equal exchange, temporary annual trade deficits must be offset subsequently by annual trade surpluses among the participants.

The unending cumulative accumulation of many billions of US dollars by foreigners  that are then lent back to the USA to pay for their exports to us is unprecedented by its magnitude and duration.  Obviously, it cannot continue indefinitely because the debt service (interest) cost alone, not to mention repayment,  from the United States borrowing from foreigners  will eventually become unsustainable.  It is not "free trade", because trade requires an equal exchange of goods over the longer term, with year-to-year imbalances previously being offset by gold transfers between the central banks (i.e., the Federal Reserve Bank in the United States).  Since leaving the modified gold standard in 1971, the United States has been sending out tens (and now hundreds of) of Billions of dollars annually to cover its balance of payments deficit.. Dollars are debt: they represent claims upon the real economy which ultimately must provide services or things of value to their holders (or claimants). 

The willingness of foreigners to hold dollars used to pay for our imports as a secondary domestic internal currency in unstable countries has enabled the United States to defer the real economic cost of repatriating those dollars back to this country.  China and Japan recently have signed a bilateral agreement for their mutual trade, eliminating the need for dollars to finance their transactions by exchanging their own currencies.  Another troubling consequence is the purchase of vast farmland holdings by foreigners and other assets such as shopping centers inside the USA. There have been limits of foreign ownership of airlines, but I am not aware of other industries that also could be shielded from foreign controlling ownership.

Eliminating the cost of imported oil by its long term replacement through renewable domestic energy supplies is becoming an absolute necessity, both from the financial as well as the environmental (i.e., greenhouse gas emissions reduction) perspective (see the Energy and Environment Issue Paper).  Domestic natural gas provided by the new fracking technology is a temporary "bridge fuel" expedient until it also could be replaced by renewable energy sources. Furthermore, that technology has not been proven to be without its adverse health and environmental impacts. The waste of natural gas flaring into the atmosphere from its oil field in Alaska instead of transporting to the lower 48 is inexcusable and and ecological crime. The North sea of Europe reinject the gas from oil extraction back into their formations.

Tariffs to eliminate profits from human exploitation should be imposed upon imports produced by workers receiving slave labor wages and having to endure substandard employment conditions.  The revenue from these tariffs should be used to compensate American workers displaced by foreign slave labor. If we don't tolerate such treatment of human beings in this country, how can we morally justify condoning and encouraging treatment of other human beings abroad by purchasing products made with their labor?   It is impossible for American workers to compete on this basis even if they were to be forced to accept similar treatment because our workers could not survive living in Americas colder climate under such conditions.  In the 1920s, imports from the Soviet Union were banned because the Congress said that they were produced by slave labor.  Why doesn't the Congress use the same rationale toward slave labor produced imports now?

Finally, the United States must increase its exports to achieve a trade balance with China and other countries that now hold hundreds of billions of our dollars to reduce the USA's foreign debt service costs and stimulate our economy.  Facilitating foreign tourist visits by simplifying and expediting visa processing creates many clean low skill jobs in areas that desperately need increased employment.  For example, these countries should be requested to buy American made wind powered electricity turbine generators solar power systems, a solution which would stimulate the renewable energy industry in the United States and benefit its foreign creditor nations as well as the world's environment by reducing future fossil fuel consumption and greenhouse gas emissions. It is far better to earn our dollars back from increased exports and tourism than have foreigners acquire ever increasing ownership of our land and other physical assets lest we Americans become tenants to foreign owners inside THEIR country. Some countries (i.e., Mexico) learned that lesson the hard way and now do not allow majority foreign ownership of  their assets and only 99 year leases on their lands.  We should follow their example!

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