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2000 Trade Deficit Shows Continuing Decline in U.S. Global Position
By William R. Hawkins
Sunday, March 11, 2001
Despite the constant use of the term "globalization," few people really look at the globe when discussing international trade and investment patterns. This is because globalization is a term dealing entirely with corporation structure, not about national societies. Thus despite their spin about being progressive thinkers, corporate leaders are actually very narrow-minded technocrats uninterested in the big picture. And the tired old 19th century theory of "free trade" is promoted to shield them from the criticism of those who are concerned with the big picture.
A look around the world reveals that the benefits of the global economy are not very evenly spread between nations and regions. It matters greatly where factories and research labs are built, where capital flows, where technology becomes available ? and where these things do not happen. The location of productive activity affects not only local prosperity (wealth and income), but also the international balance of power. Almost every culture has its version of the ancient Chinese saying fuguo qiangbing ? strong economy, strong army.
The trade balance is one measurement of where productive activity is taking place, and where it is not. When a country exports, it means it is using foreign demand to support its domestic economy. When it imports, it is allowing its domestic demand to support foreign work. The balance measures the extent that a country has been able to add to its domestic production through participation in the global trading system ? or has had its position undercut by other players in the system.
What drives international trade is manufactured goods. Agricultural commodities and oil play their part, of course, but it is in manufactured goods that the power of nation?s industry and technology are measured. For 2000, U.S. goods exports were $773.3 billion and imports were $1,222.8 billion, resulting in a goods deficit of $449.5 billion, $103.9 billion more than the record 1999 deficit of $345.6 billion. While some of this deficit was not due to overseas manufacturing, such as the $47.8 billion deficit with OPEC due to oil imports, most of it does represent an imbalance in industrial production.
The U.S. had a $83.8 billion deficit with China; a $81.3 billion deficit with Japan; a $55.5 billion deficit with the European Union (including a $29.5 billion deficit with Germany) and a $29.8 billion deficit with the three "tigers" of the Pacific Rim: Singapore, Taiwan and South Korea.
These deficit have to be financed, which means the sale of American assets to foreign investors. Over 83% of the foreign direct investment goes to acquire existing businesses, transferring control of productive capacity away from American hands. Twenty years of trade deficits have turned the U.S. into the world?s largest debtor nation, where foreigners own $1.5 trillion more in assets here than Americans own overseas.
The way to wealth is by selling products, then plowing the profits back into expanding production so that more profits can be earned, and invested, in an upward spiral of growth. Unfortunately, the trend in America is just the reverse. Both wealth, and the means to create wealth, are being transferred to foreign control through the rising trade deficit.
William R. Hawkins is Senior Fellow for National Security Studies at the U.S. Business and Industry Council.
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