I have written several posts on the economic problems that are facing the United States. I have grown tired of watching politicians on television discussing the unemployment problem in the country with both sides failing to address the true issue. There is talk on one side of the table about how tax cuts for businesses and the rich will boost hiring. The other side believes that temporary spending measures will create jobs. The truth is this simple. Tax cuts do not create jobs. Government spending is not a long term job creator either. What does create jobs?
The China Problem
It all goes back to Economics 101. Companies will only hire if there is demand. Demand creates jobs. The demand for U.S. goods has been replaced by the demand for cheap foreign products. We buy most of our products from other countries while other countries do not buy our products. The biggest offender is China. This is the most imbalanced trading relationship that the United States has with any country. We have mortgaged our jobs and financial future to gain limited access to the Chinese market.
Look at the Foreign Trading Report with China from the Census Bureau.
| Month | Exports | Imports | Balance |
|---|---|---|---|
| January 2010 | 6,888.8 | 25,185.1 | -18,296.3 |
| February 2010 | 6,855.1 | 23,363.8 | -16,508.8 |
| March 2010 | 7,403.6 | 24,300.2 | -16,896.6 |
| April 2010 | 6,591.2 | 25,905.7 | -19,314.5 |
| May 2010 | 6,752.7 | 29,036.8 | -22,284.1 |
| June 2010 | 6,715.0 | 32,866.5 | -26,151.5 |
| July 2010 | 7,344.7 | 33,260.0 | -25,915.3 |
| August 2010 | 7,253.5 | 35,288.5 | -28,035.0 |
| September 2010 | 7,168.2 | 34,999.2 | -27,830.9 |
| TOTAL | 62,972.8 | 264,205.9 | -201,233.1 |
We have a $201 billion dollar trade deficit with China. This is just for the first 9 months of the years. We are on pace for a $250 billion dollar trade deficit this year. Since 2001, we have a nearly $2 trillion dollar trade imbalance with China. The exact figure is approximately $1.86 billion through October. These figures represent lost jobs and worker productivity for the U.S.
There Is No Fair Trade
Is this really what we call fair trade? We all know that China manipulates its currency, engages in protectionist policies that keeps many foreign products out of its markets but politicians do not cry foul. China keeps its currency weak so that its exports will be cheaper than other countries products. China discriminates against American goods more than America discriminates against their goods.
When China joined the World Trade Organization, that was supposed to improve our trade imbalance with China. Joining the WTO turned out to be a great move for China! Our trade deficit has increased more than 3 times what it was before China joined in 2001. To quote Warren Buffett, “our country’s net worth is being transferred abroad at an alarming rate.”
Never Ending Cycle
It’s an amazing cycle when you think about it. We borrow money from China by selling the country much of our debt. We then use the money that we have borrowed to purchase imports from China. So, we effectively spend the money that we borrow to buy foreign goods and then pay interest on the borrowed money to the same country. Basically China loans us money to buy their goods.
U.S. based corporations deserve blame as well. Many U.S. companies are moving their businesses to China and taking millions of jobs to the Asian continent because of the low worker wages. According to Bill Gross, “Chinese labor works for 10 percent or less its American counterparts.” These same companies enjoy tax breaks and subsidies that encourage them to close up shop domestically and create jobs in other countries.
These are serious issues that Congress should be addressing so pardon me if I do not believe that wasting time quibbling over tax cuts for the rich will fix all of these issues.
I totally agree. It is getting more difficult to even buy American products and the cost is so much higher. So, what would your 5 step approach to solving the situation and recreating a producer environment instead of the current consumer environment?
Great question Carol. I am actually working on that post right now.
Hey Mark,
What an excellent post. I’ve gone to stores before and tried to only buy American, and it was one of the hardest things to do. Forget just about every electronic device out there. Keep these great posts coming.
Thanks,
Timothy
Thanks Tim! That’s my point exactly. We import way too many goods. We need to ramp up domestic production.
China’s Innovative Way of Skinning the United States!
Mark Twain is credited with an early use of the cliché “more than one way to skin a cat” in A Connecticut Yankee in King Arthur’s Court, as follows: “she was wise, subtle, and knew more than one way to skin a cat, that is, more than one way to get what she wanted”. Thefreedictionary.com defines beggar-thy-neighbor as: an international trade policy of competitive devaluations and increased protective barriers that one country institutes to gain at the expense of its trading partners. Under the guise of fostering ‘indigenous innovation’, the Chinese government has creatively used a non-conventional, subtle version of beggar-thy-neighbor. Its version doesn’t entail the competitive devaluation of its own currency, which would enhance China’s exports and inhibits its trading partners’ exports to China. China’s version perpetrates an over-valuation of the currencies of one or more of its trading partners. This negatively affects all the trade of the pegged trading partner(s), not just trade with China. During the recent period China pegged its currency to the U.S. Dollar, its version of beggar-thy-neighbor was 8 times as damaging to the U.S. economy as what the media refers to as “China keeping it currency undervalued”.
In November 2003, Warren Buffett in his Fortune, Squanderville versus Thriftville article recommended that America adopt a balanced trade model. The fact that advice advocating balance and sustainability, from a sage the caliber of Warren Buffett, could be virtually ignored for over seven years is unfathomable. Until action is taken on Buffett’s or a similar balanced trade model, America will continue to squander time, treasure and talent in pursuit of an illusionary recovery.