|The US current-account deficit—the combined balances on trade in goods and services, income, and net unilateral current transfers— increased to $475.0bn (preliminary) in 2012 from $465.9bn in 2011. As a percentage of US GDP, the deficit decreased to 3.0% in 2012 from 3.1% in 2011.|
Dr Peter Morici:
President Obama is
betting a lot on free trade. Recently, he has agreed to open talks for mega
trade deals with the European Union and Japan in hopes of jump-starting growth
in both places and boosting US exports and jobs. However, far from an elixir,
free trade has been a rock on the back of the US economy and American workers,
and the Obama strategy will only make things worse.
blackboards where economists theorize, free trade is a compelling idea-let each
nation do more of what it does best, and international commerce will raise
national productivity and incomes. But these benefits are not guaranteed if a
few big nations can cheat on the rules.
The World Trade
Organization has greatly reduced tariffs, export subsidies, and barriers to
trade posed by domestic polices, such as biases in government procurement and
discriminatory product standards. In addition, US deals with Mexico, Canada,
South Korea, and other small nations have reduced tariffs on bilateral trade to
zero and eliminated even more non-tariff barriers.
For these rules
to optimize specialization, productivity and incomes, exchange rates between
national currencies must adjust to reasonably reflect production costs and
facilitate balanced trade. To buy Chinese television sets and smartphones,
Americans must sell enough industrial machinery and software in China or US
are established in currency markets, created by businesses trading through major
financial institutions. Unfortunately, China and Japan have blatantly
manipulated these markets, without a credible US response and with ruinous
consequences for US workers.
Minister Abe has managed to push down the yen 23% from its value last
August and that is worth more than $2000 on every Toyota sold in the United
States. The Japanese automaker can put that cash into additional vehicle
content, advertising, and discounts making a mockery out of fair competition
with Ford and GM.
troubles in southern Europe have motivated investors to move cash into US
Treasuries and stocks and suppressed the value of the euro against the dollar-to
the great advantage of German exporters. Paradoxically, austerity policies for
the Mediterranean states, championed by Angela Merkel, are doing more to boost
German exports than resurrect those ailing economies.
With the three
largest US competitors enjoying undervalued currencies, it is no surprise the
United States suffers from chronic, large trade deficits.
The United States exports
$2.2tn in goods and services
annually, and these finance a like amount of imports. This raises US gross
domestic product by about $235bn, because workers are a bit
more than 10% more productive in export industries, such as software,
than in import-competing industries, such as apparel.
US imports exceed exports by another $500bn and that reduces demand for US-made goods and services. With multiplier effects, the trade deficit is
slashing at least $800bn off GDP.
Many US workers
are pushed from high-paying jobs, not because they can't compete, but because
the Administration fails to take a tough stand against currency manipulation.
And as many as 8 million workers can find no work at all, because of misguided
US trade policies, and wages remain depressed.
manufacturers have petitioned President Obama, and his predecessors, to take
action-and economists spanning the ideological spectrum have suggested
substantive measures that could combat currency manipulation and misaligned
Administration has complained to China and Japan about currency manipulation but
after years of US inaction, they simply ignore US warnings.
Administration continues to negotiate trade pacts that open US markets to
foreign competition but lack specific rules and penalties to address currency
manipulation. Until an American president is willing to ensure free trade in
goods is matched by free trade in currencies, the US economy will endure anemic growth and workers will suffer high unemployment and low wages.
Professor, Robert H. Smith School of Business, University of Maryland,
College Park, MD 20742-1815,
703 549 4338 Phone
703 618 4338 Cell Phone
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