Feb 11, 2006

US Trade Deficit $726 Billion In 2005

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Left: Monthly US trade deficit, chart courtesy of Calculated Risk.

(Washington, DC) The United States trade deficit widened to a record $726 billion in 2005, the government reported yesterday. This adds even more fuel to the debate between advocates of free-market globalization and those who believe that free trade is causing the erosion of American manufacturing jobs.

2005 marked the fourth consecutive year that the trade deficit has set a record, as American consumers continued their seemingly insatiable demand for all things foreign, from new cars to TVs and electronic goods.

Oil, of course, contributed to the growth in the trade deficit as well. Excluding oil and other petroleum products, the trade deficit would have grown at a 10 percent annual rate, to $537 billion.

The trade gap worries many economists because it means the United States must borrow heavily from overseas to pay for the spending.

Dollars that Americans spend on imports are typically invested by foreigners in US Treasury bonds and mortgage entities such as Fannie Mae and Freddie Mac. Thus, the more the trade deficit widens and continues, the greater that overall US indebtedness becomes.

Economists worry that if foreigners suddenly pull out of US assets, they could send the value of the dollar, stocks and bonds all plummeting.

The trade deficit could reach $1 trillion in 2007 if it continues to grow at 2005's pace. Gary Hufbauer, a senior fellow with the Institute for International Economics, discounted this scenario, and said he expected the deficit to level off in 2006.

"It's possible, but I think unlikely that we'll break a trillion" over the next several years, Hufbauer said. "The reason I would say it's leveling off is that foreign growth is doing better, whereas U.S. growth is slowing down a bit."

The neo-cons have been selling US manufacturing jobs overseas while chanting the mantras of free trade for several decades now. Individual shareholders have profited, but the average worker is hardpressed to say that globalization has brought lasting benefits to the United States.

19 comments:

Stefan Schmidt said...

S – I = NX

This equation indicates the relationship between a trade deficit and savings.

For NX (net exports) to be negative I (investment) has to be greater than S (savings).

This means America as a whole is spending more than it is earning (i.e. accumulating debt oversees).

Is it a bad thing?

This depends what our money is being investment and the interest rate in those countries (such as China where we run the greatest deficit).

Not all debts are a bad (for example: my debt as I currently attend college) but I doubt America can sustain solid economic growth to maintain such reckless spending.

That was my 2 cents.

Stefan Schmidt said...

Correction:

This depends on what our money is being invested in and the interest rate in those countries (such as China where we run the greatest deficit).

Sorry about that…

Stefan Schmidt said...

Correction:

(i.e. accumulating debt over seas)

I don’t know what’s wrong with me today…

Stefan Schmidt said...

The neo-cons (Jews) are advocating globalization because some of their corporations will profit.

There is also an argument to be made that the ultimate goal of the neo-cons (closet liberals) is the abolishment of national sovereignty and identity.

The U.N., open boarders, and globalization could be seen as baby steps to this goal.

I will leave it at that since I am not feeling overly ‘political’ today.

historymike said...

As a percentage of GDP, the trade deficit has been steadily rising for over 20 years.

In 1991, it was 1.09% of GDP.

In 2005, it was 6.53% of GDP.

Astounding.

Stefan Schmidt said...

Astounding.
=========

It is considering annual nominal GDP growth is approximately 4% (I believe; do not be afraid to correct me if I am wrong).

This is a good development for the WN movement since it will take plenty of outrage to change the status quo.

Stefan Schmidt said...

China’s GDP is growing at a robust 9% and in addition to this their population is decreasing (due to the one-child policy) while ours is increasing (due to very fertile Hispanics).

Lisa Renee said...

Agri-trade

Interesting part of this discussion worth considering:

Per capita food consumption in the U.S. increased by an average of 10 pounds per year over the past 20 years. At the same time, imported food per capita grew by 5 pounds per year. In 1983, each American consumed about 1,800 pounds of food, of which 160 pounds were imported. By 2002, per capita consumption had risen to 2,000 pounds and per capita imports reached 263 pounds. Thus, not only are Americans eating more imported food each year, but the share of imports in total food consumed is also steadily increasing. Based on the value of total U.S. agricultural imports, each American consumed $142 of imported food and agriculture products in 2002, more than twice the value of imported food consumed in 1983.

Stephanie said...

Lisa,

If we treated our farmers better, that wouldn't happen. Instead we sell them out to big corporations...that don't provide the type of diverse products that Americans crave.

Most of the food Americans eat COULD be grown and produced here, as we have a diverse enough climate to support most foodstuffs. Which makes those figures all the more unfortunate.

Stephanie said...

Mike,

Perhaps I'm missing something. Are you calling former Pres. Clinton a neo-con?

Stefan Schmidt said...

Mike,

Perhaps I'm missing something. Are you calling former Pres. Clinton a neo-con?
======

Liberals and neo-cons are one and the same.

Lisa Renee said...

I agree Stephanie, and that is a part of the problem as an aside I thought the increase in pounds eaten per American was surprising. I also find it funny when people talk about how Wal-mart has created some of this going to Target and seeing the exact same item there, manufactured in the same country yet most people don't seem to realize that. I guess if you pay more at Target for an imported product than Wal-mart that somehow makes a difference....

:-)

historymike said...

Yep. Not much difference between the neo-cons and Clinton. He signed NAFTA into law, beginning what Ross Perot presciently described as the "giant sucking sound" of American jobs leaving.

Stefan Schmidt said...

Yep. Not much difference between the neo-cons and Clinton. He signed NAFTA into law, beginning what Ross Perot presciently described as the "giant sucking sound" of American jobs leaving.
======

Wow… You agreed with me…..

Stephanie said...

Hey, I prefer Target, but not because I'm under some sort of dellusion that they've got American-made products (they do, but not nearly enough--trust me, I've looked). It's rather simple for me.

1) I can't go to the small stores, because they're generally not designed to bring kids in and don't have the products I need at prices I can afford ($20 for salon shampoo is totally out of the question for me), if they have the products I need at all.

2) I cannot take my children w/ me to most local department stores because they pack so much product in that you cannot get a three-seater cart through the aisle without sticky fingers having access to things I do NOT want to buy.

3) They carry the right kind of Thomas the Train toys--the ones my son collects.

4) I prefer their clothing to any other price-equivalent store in my area. Sure, I'd rather shop at Maurices or Boston Store, but even on sale the prices are too high for me.

And, besides, the cashiers don't give me weird looks when my kids act up. They're very good at scanning the toy and handing it back without even questioning it. Whereas, I've been lectured at Wal-mart by a cashier that I was spoiling my children. When I explained autism and the lack of social awareness she looked at me like it was somehow my fault that she didn't know that.

Stephanie said...

"Yep. Not much difference between..."

Just so we're on the same page there. As my state is bleeding jobs like crazy (with both my husband and I being casulties of such hemorhaging), this is certainly something I feel strongly about. But it's not something that can be laid at the feet of any one political party.

If Democrats were so good at this than my Governor wouldn't be replacing good jobs with crap jobs at businesses that go under in a year or two and calling it a good deal for Wisconsin.

White Mormon Patriot said...

Stephanie wrote "If Democrats were so good at this than my Governor wouldn't be replacing good jobs with crap jobs at businesses that go under in a year or two and calling it a good deal for Wisconsin."
================================
The problem is that, like the Republicans, the Democrats are far more interested in power rather than progress, and the media is much more interested in style rather than substance. Most politicians have just one prime directive - get re-elected. They also use scare tactics to perpetuate the two-party duopoly. In 2000, Republicans told us "a vote for Buchanan is a vote for Gore". The Democrats responded with "a vote for Nader is a vote for Bush". The vast majority of lemmings were scared into voting for one of the two Establishment's stooges.

Then compare the overwhelming amount of time the media spends covering celebrities and scandal with the small amount of time discussing serious issues like trade, deficits, immigration, etc. Lou Dobbs is the only talking head who discusses trade. He and O'Reilly are the only ones consistently discussing immigration, and Neil Cavuto is the only one of these "money honeys" who can talk the market without putting us to sleep.

The globalists get the gold mine, and the working class gets the shaft.

Stephanie said...

Hey, alaskawingnut, you're singing VOID's song! Check it out, I highly recommend it.
;-)

Hooda Thunkit said...

Free trade only works when everyone plays. And, we can only allow free trade to the same extent that our neighbors/friends are willing to allow free trade too.

So far, we are playing the free trade game partnerless.

Under these circumstances, only the corporate greed types are prospering.

And, this has NOTHING to do with political parties...