God bless viewpoint, for it offers me an opportunity to vent an occasional rant now and then and perhaps I'll live a little longer as a result of it.
I have had the most difficult time understanding the importance of the issue of a trade deficit and finally I discovered exactly why it's a problem for every American today and even for future generations.
This revelation is so profound, so subtly insidious, that I feel compelled to share it on viewpoint. It's actually very simple.
We incur debt to foreigners which are excesses of imports over exports. The dollars earned by foreign businessmen usually are deposited in foreign commercial banks which deposit them in their central banks, which invest them directly in U.S. Treasury obligations or other claims and assets in the U.S.
It appears, on the surface, that you are not a part of this mechanism simply because you go to Wal-Mart and purchase some goods made in China at dirt-cheap prices but it is important to realize that the money you spend on those products go to Hong Kong and come right back with many other dollars for the purchase of U.S. Treasury bills, notes, or bonds. All of these are certificates of debt that you or your children are obligated to meet. In other words, the U.S. government is enabling you to participate in this mechanism and the majority of Americans don't have a clue of the consequences of their bargain purchases. In fact, those shrewd purchases only contribute to the hidden debt liabilities, via our government, that are adding to the hundreds of billions of dollars already owed!
To add to the problem, every good or service purchased from outside of the U.S. is one less item that needs to be manufactured here. This pressures American companies until they eventually lay off their employees or go out of business altogether.
Now here's the interesting part. Instead of allowing free markets to determine the value of the Chinese currency, China has pegged its currency value at approximately 8 of their currency units to 1 U.S. dollar. The effect of this is that as the U.S. dollar looses value against other world currencies which would make imports less attractive and our exports more attractive, the Chinese currency depreciates proportionally so their exports are always competitively priced when compared to American products. This guarantees that the trade deficit (and our debt obligation) will continue to widen until something dramatic occurs. They don't say "Buy American" for nothing!
We hear that all of this is because we, as a nation, must subscribe to the concept of "Free and Fair Trade". Well what's fair about China artificially manipulating their currency at our expense? Furthermore, what's fair about competition with a country that has zero labor laws? I read a news article about an investor who visited a Chinese company where they manufacture tennis rackets. It was evening when they walked into the manufacturing facility and the company owners had to turn on the lights of the facility which enabled the investor to see hundreds of people, previously working in the dark, stringing tennis rackets. Is it fair for America to compete on terms like that?
What's fair about trying to compete against companies in China that have no environmental restrictions against pollution and can operate much more economically than companies in the U.S. that must meet ecological standards set and enforced by our government?
The bottom line is that there is nothing fair about it and the only thing that's free is the free ride China is getting at the expense of Americans.
Just recently, groups have petitioned the Bush administration to bring a case before the World Trade Organization because the currency of China is generally considered to be undervalued by perhaps as much as 40%. This makes Chinese goods extremely competitive compared to U.S. goods. But the Bush administration quickly rejected the petition, declaring that it would not "retreat into economic isolationism" by bringing a case that could impose economic sanctions on Chinese goods.
This is totally unacceptable because America is being gutted at the speed of light yet the Bush administration is doing nothing whatsoever to impact the logical, disastrous conclusion. Sanctions are precisely the remedy for what is happening. Otherwise, nothing will change until an equilibrium is reached. The standard of living of every American is going to be reduced until it is comparable to the standard of living of people in China, and India, and Mexico. Once that happens, the trade deficit will be zero because foreign goods will no longer be attractively priced. Americans will be making the same products, in the dark, for perhaps $5 per hour. Just remember that during your next trip to Wal-Mart.
