The trade deficit dilemma

The last couple of days were filled with trade news -- all of it bad for the United States.
UThe World Trade Organization imposed penalties on a broad range of U.S. exports to Brazil, Canada, Chile, the European Union, India, Japan, Mexico and South Korea in retaliation for a 2000 law that lets the U.S. government fine foreign companies that it judges to be selling goods in America at below-market prices. The revenue is paid to U.S. companies to help them better compete.
The WTO found the law was illegal because it punished exporters to the United States twice: First they are fined, then those fines are given to their competitors. That the exporters were dumping goods on U.S. markets appears to be of no consequence to the WTO.
UWards Automotive predicts that this is the year that Ontario will surpass Michigan as the biggest auto-producing state or province in North America. Canada, which sells 84 percent of its exports to the United States and buys 71 percent of its imports from here, will increase its margin even more as Americans buy U.S. nameplate cars that are made north of the border. (For those who wonder if Canada will appreciate the gesture, note that it is among the eight complainants in the WTO entry above, and read the next item.)
UPresident Bush will meet this week with Canadian Prime Minister Paul Martin, at which time Martin is expected to complain about a 27 percent trade duty on Canadian softwood lumber imported into the United States. The complaint will come despite the fact that Canada has enjoyed a trade surplus with the United States for the entire two decades during which the duty has been in place. And despite the fact that Canada sold $50 billion more to the United States than it bought in 2003 (and has already racked up that much of a trade surplus in the first nine months of this year).
UJust the hint that China's central bank might reduce its holdings in U.S. currency, which it has amassed through its enormous balance on trade difference with the United States, sent the dollar to a record low against the Euro.
The last time the United States sold as much merchandise on the world market as it bought was 1990. Since then it has amassed trillions of dollars in trade deficits, including $533 billion in 2003 alone, a quarter of which was with China. Those lost dollars are now coming home to roost.
It is time for the American people and the Bush administration to begin recognizing that deficits -- trade as well as budget -- do matter.
The administration has been willing to throw its weight around everywhere but where in may ultimately matter the most, with the World Trade Organization.