.comment-link {margin-left:.6em;}
Heavy-Handed Politics

"€œGod willing, with the force of God behind it, we shall soon experience a world
without the United States and Zionism."€ -- Iran President Ahmadi-Nejad

Friday, May 09, 2008

A PRIMER ON TRADE DEFICIT

Neal Asbury, president of Greenfield World Trade, exporting American-made products to 137 countries worldwide, has written a very instructive column "TRADE VISION DEFICIT DISORDER."

He reminds us that Congress has been granted sole power under Article I of the U.S. Constitution "to regulate commerce with foreign nations".

"The Constitution grants the president no trade specific authority whatsoever. There is no sphere of government policy where the primacy of Congress could be clearer. Congress reins supreme on trade unless and until it decides otherwise," Asbury points out.

The President of the U.S. has no power other than the power of influence in this arena. Asbury talks about the outdated Marshall Plan that plaques us today.

"There is nothing new under the sun in global trade. Britain at the height of its empire in the middle of the nineteenth century embraced unilateral free trade and opened its markets to the world without any reciprocal consideration for its industries. It is fitting to remember within seventy years of this charitable gesture, Britain was nearly broke and its position as one of the world's leading financial markets evaporated," says Asbury.

And in order "to keep American from suffering the same fate, our Marshall Plan mentality must be reversed so that we never cede our once envious export prowess to our competitors and adversaries, and thereby protect the economic future of millions of our citizens."

"Unlike other seemingly impossible challenges we face, our trade deficit is something we can correct in a relatively short period thus creating millions of well-paying jobs. It is as straightforward as establishing an environment where American exporters are allowed to compete."

Please go read more, for it is good.

1 Comments:

  • Heavyhanded, if your interest is in eliminating the trade deficit and restoring the manufacturing sector of America's economy, I think you've been duped by this article.

    The solution the article proposes is summarized in one paragraph:

    "Adopting these same standards would eliminate tariffs on manufactured and agricultural products and open up service markets and government procurement. Labor rights, safety standards, environmental protection, intellectual properties, and due process would all be protected and regulated. In short, the playing field would be leveled. They must be pursued vigorously and immediately."

    This is a tactic employed by free trade cheerleaders: encourage Congress to "level the playing field" without taking the one action, the only action, that has any chance of leveling the field: imposing tariffs. They take this approach because they fear losing the positions they've established in foreign countries. They couldn't care less about what happens in the U.S.

    Clearly, there is something amiss with "free trade." The concept of free trade is rooted in Ricardo's principle of comparative advantage. In 1817 Ricardo hypothesized that every nation benefits when it trades what it makes best for products made best by other nations. On the surface, it seems to make sense. But is it possible that this theory is flawed in some way? Is there something that Ricardo didn't consider?

    At this point, I should introduce myself. I am author of a book titled "Five Short Blasts: A New Economic Theory Exposes The Fatal Flaw in Globalization and Its Consequences for America." To make a long story short, my theory is that, as population density rises beyond some optimum level, per capita consumption begins to decline. This occurs because, as people are forced to crowd together and conserve space, it becomes ever more impractical to own many products. Falling per capita consumption, in the face of rising productivity (per capita output, which always rises), inevitably yields rising unemployment and poverty.

    This theory has huge ramifications for U.S. policy toward population management (especially immigration policy) and trade. The implications for population policy may be obvious, but why trade? It's because these effects of an excessive population density - rising unemployment and poverty - are actually imported when we attempt to engage in free trade in manufactured goods with a nation that is much more densely populated. Our economies combine. The work of manufacturing is spread evenly across the combined labor force. But, while the more densely populated nation gets free access to a healthy market, all we get in return is access to a market emaciated by over-crowding and low per capita consumption. The result is an automatic, irreversible trade deficit and loss of jobs, tantamount to economic suicide.

    One need look no further than the U.S.'s trade data for proof of this effect. Using 2006 data, an in-depth analysis reveals that, of our top twenty per capita trade deficits in manufactured goods (the trade deficit divided by the population of the country in question), eighteen are with nations much more densely populated than our own. Even more revealing, if the nations of the world are divided equally around the median population density, the U.S. had a trade surplus in manufactured goods of $17 billion with the half of nations below the median population density. With the half above the median, we had a $480 billion deficit!

    Our trade deficit with China is getting all of the attention these days. But, when expressed in per capita terms, our deficit with China in manufactured goods is rather unremarkable - nineteenth on the list. Our per capita deficit with other nations such as Japan, Germany, Mexico, Korea and others (all much more densely populated than the U.S.) is worse. In fact, our largest per capita trade deficit in manufactured goods is with Ireland, a nation twice as densely populated as the U.S. Our per capita deficit with Ireland is twenty-five times worse than China's. My point is not that our deficit with China isn't a problem, but rather that it's exactly what we should have expected when we suddenly applied a trade policy that was a proven failure around the world to a country with one sixth of the world's population.

    Ricardo's principle of comparative advantage is overly simplistic and flawed because it does not take into consideration this population density effect and what happens when two nations grossly disparate in population density attempt to trade freely in manufactured goods. While free trade in natural resources and free trade in manufactured goods between nations of roughly equal population density is indeed beneficial, just as Ricardo predicts, it’s a sure-fire loser when attempting to trade freely in manufactured goods with a nation with an excessive population density.

    If you‘re interested in learning more about this important new economic theory, then I invite you to visit my web site at OpenWindowPublishingCo.com where you can read the preface for free, join in the blog discussion and, of course, buy the book if you like. (It's also available at Amazon.com.)

    Please forgive me for the somewhat "spammish" nature of the previous paragraph, but I don't know how else to inject this new theory into the debate about trade without drawing attention to the book that explains the theory.

    Pete Murphy
    Author, Five Short Blasts

    By Anonymous Pete Murphy, at 6:41 AM  

Post a Comment

<< Home