Sender: -2.6 (spamval) -- NONE
Mime-Version: 1.0 (Apple Message framework v619.2)
Message-Id: <3f374d648936bee4b4c4f7d40b9183a3 &AElig umich.edu>
Content-Type: text/plain; charset=WINDOWS-1252; format=flowed
Content-Transfer-Encoding: 8bit
Date: Sat, 12 Feb 2005 01:33:32 -0500
To: improvetheworld &AElig umich.edu
From: Dave morris <thecat &AElig umich.edu>
Subject: Disaster looms for the US Economy
Status: O

This is a good article about our trade deficit, and it's implications. 
Not only are we screwed because we're not really very competitive in 
the global market in any sector anymore (or are heading that way), but 
the world is screwed because much of it depends on our rampant 
over-consumption which we cannot sustain. On the other hand, we've had 
an unfair advantage and used more than our share of the planet for some 
time now, so it's good to see the end of that coming. Kind of like the 
fall of Rome. A lot like that, actually. I vote for China as the next 
new power, especially if they get their nuclear reactors online before 
the collapse. Regardless the next few decades should be exciting. In 
the meantime I'll continue to work on ways to get off planet. :-)

Dave Morris
University of Michigan EM PhD candidate, aka thecat &AElig umich.edu, aka 
KB8PWY
home: 734-995-5525  office (2104 SPRL): 734-763-5357  fax: 734-763-5567

http://www.americaneconomicalert.org/view_art.asp?Prod_ID=1277

New Trade Deficit Figures Turning US Economy into a Disaster Movie
Alan Tonelson
Friday, February 11, 2005

This week Washington issued a report on America’s trade performance 
that only an Irwin Allen could love. You remember Allen, right? The 
master of 1960s and 1970s cinematic extravaganzas like “The Towering 
Inferno”and “The Poseidon Adventure”?  Well, the year-end 2004 trade 
figures published on Feb. 10 by the Department of Commerce are the 
economic equivalent of a disaster movie.

New records were set all over the place – but not the kind any well-run 
economy would seek. The overall 2004 U.S. trade deficit (goods and 
services) hit a record $617.7 billion, shattering last year's record of 
$496.51 billion by a staggering 24.4 percent. In yet another new 
record, the  deficit’s share of the U.S. economy jumped from 4.5 
percent in 2003 to 5.3 percent in 2004.

Total exports of goods and services rose $125.6 billion to $1.146 
trillion, an increase of 12.3 percent. Could this be a sign that the 
dollar’s recent weakness against most major currencies is finally 
giving U.S.-made goods a price advantage in world markets?  Maybe.  But 
why, then, did total imports of goods and services rise $246.9 billion 
(roughly twice the export increase) to $1.764 trillion, an increase of 
16.28 percent?  Why didn’t this price advantage seem to matter much at 
home, where imports continued to eat into domestic producers’ sales and 
employment?

Many analysts put much of the blame on oil, and the final 2004 figures 
clearly show that America’s addiction to oil imports continues to 
intensify.  The oil trade deficit worsened by a stunning 36.21 percent 
last year, to $164 billion, reflecting not only increased volume 
imports but much higher prices. Yet the non-oil goods deficit rose 
18.35 percent – a hefty gain – and is nearly three times larger.  
Clearly, America's trade problems are much more than an oil problem.

To no one’s surprise,  the U.S. deficit in manufactures continued to 
soar, increasing 17.6 percent in 2004, from $469.45 billion to $552.06 
billion. 2004 exports did rise $65.49 billion, or 11.4%, to $623.44 
billion. The weak-dollar effect again? Again, maybe. But again, 
seemingly beside the point, as the much larger volume of imports 
increased by $148.1 billion, or 14.42 percent, to $1.176 trillion.

Since manufactures dominate U.S. trade flows, new confirmation that 
imports not only dwarf exports but are rising considerably faster 
underscores a critically important message: With one exception, neither 
the weak dollar nor any other touted hope or strategy has a prayer of 
restoring sustainability to America’s international accounts. And the 
one exception is a deep, prolonged economic downturn.

Certainly, no one should look to the service sector to rebalance the 
trade flows. Services are almost universally trumpeted as not only the 
inevitable future of the American economy, but its best hope for future 
prosperity. The longstanding U.S. services surplus, however, is rapidly 
becoming history. Between 2003 and 2004, this surplus shrank by just 
over five percent, with imports growing about one third faster than 
exports. More disturbingly, the decline of the service sector surplus 
since 2002 has been a whopping 20.77 percent. The unavoidable bottom 
line: U.S. competitiveness in this sector is faltering badly.

Even worse is the news about the “other private services” category, 
which includes high-paying info-tech and professional services work.  
This sector of the economy employs America’s best and brightest, and 
pays its highest wages.  Yet this longstanding surplus has been eroding 
steadily as well – by 1.92 percent since 2002, to $47.99 billion.

Such a decline may seem modest and indeed hardly newsworthy at all. But 
in “other private services,” the United States and its providers should 
be wracking up large and rising surpluses. Otherwise, the numbers of 
Americans who can expect employment as software engineers, network 
administrators, financial analysts, lawyers, and doctors, may remain 
stuck at current levels. And if employment in these sectors rises, the 
reason is likely to be that American pay levels have sunk toward the 
much lower global norm.

Humongous U.S. trade deficits with China are no longer news, but the 
2004 China figures give pause nonetheless. The China goods deficit rose 
from $124.1 billion to $162 billion, a $37.9 billion increase, or 30.53 
percent This is a faster increase than that of the overall U.S. goods 
deficit. As a result, the China goods deficit currently makes up fully 
28 percent of the total global U.S. goods deficit. (Country-by-country 
figures for 2004 services trade are not available yet.)

For some reason, globalization cheerleaders look at a Chinese economy 
growing at near-double digit rates and view its modest recent deficits 
and surpluses as a sign that China has become a major engine of growth 
for the rest of the world. What they conveniently forget is that an 
economy growing that fast should be in deep deficit with the rest of 
the world; it should be sucking in net imports like crazy. China’s 
more-or-less evenly balanced trade with the rest of the world is 
glaring evidence of its mercantilist trade practices, and of its role 
as a major drain on the world’s wealth-creating capabilities along the 
lines of Japan in recent decades.

Of course, America’s trade with China is anything but balanced. U.S. 
exports to the People’s Republic did rise in 2004 by $6.4 billion to 
$34.7 billion, an increase of 22.6 percent. But the much greater tide 
of U.S. imports from China rose $44.3 billion to $196.7 billion, a 
29.07 percent jump.

Meanwhile, U.S.-European trade trends should be driving a stake through 
the heart of weak-dollar hopes. The Euro has been the currency against 
which the dollar has been weakest for two years. Yet the U.S. goods 
deficit with the Euro area (those European countries that have actually 
adopted the Euro) climbed $8.85 billion in 2004, a 11.95% increase. 
Exports rose $14 billion (a 12.4 percent increase), while imports rose 
$22.86 billion (a 12.2 percent increase).

Since new exchange rates almost never produce immediate or rapid 
changes in purchasing and importing patterns, some lag between the 
dollar’s weakening and a narrowing of the trade gap with 
strong-currency countries has to be expected.  Indeed, if a 
weak-currency country has to import goods even though their prices rise 
(e.g., because these goods are no longer made domestically), the trade 
deficit may increase for a while. Economists call this delayed swing in 
the trade balance the “J-curve” effect.

At the same time, a weakening currency also may not affect trade 
balances much because the strong-currency country may have in place 
formidable trade barriers that restrict the weak-currency country’s 
exports. And the J-curve could take many years to play itself out.  
Americans have consistently experienced this problem with Japan. The 
Euro area might be an exception, but the jury is still out.

The possible limits of the weak-dollar policy become even clearer from 
examining America’s trade with Canada.  Despite the Canadian dollar’s 
major appreciation against the greenback, the total U.S. goods deficit 
with Canada climbed $14.1 billion in 2004 to $65.77 billion. This 27.3 
percent increase was nearly as fast a rise as that of the U.S. goods 
deficit with China – which brazenly manipulates its exchange rate. 
Exports rose $20.24 billion to $190.16 billion (an 11.91% increase), 
while imports rose $34.33 billion to $255.93 billion (a 15.5% 
increase).

The U.S. trade patterns revealed by the final 2004 trade figures are a 
national disgrace and a global danger. They remind us once more how 
perilously dependent the world has become on U.S. consumption, and yet 
how America’s ability to finance this consumption responsibly keeps 
eroding. Maybe the nation’s globalization cheer-leading political and 
economic establishments think that, like disaster movies, this story 
ultimately has a happy ending. When will they realize this isn’t 
Hollywood?