Trade deficit endangers U.S. economy

By ALAN TONELSON
KNIGHT RIDDER/TRIBUNE
WASHINGTON -- America's lopsided trade with China not only endangers future U.S. prosperity. America's huge deficits are also undermining national security by financing the expansion and modernization of China's military. Just as important, the U.S.-China trade imbalance is boosting the odds of a long, deep downturn in the entire world economy whose consequences China will not escape.
While lobbying hard for expanded trade with China over the last decade, cheerleaders for the China trade status quo have consistently promised Americans more access to a huge, fast-growing market for U.S.-made products. Thus America's producers could grow their earnings, create jobs and pay their workers better.
The results, however, have been completely different. China sells the United States more than six times the value of the goods it buys from America, and the ratio keeps rising. Although U.S. exports to China are increasing, imports from China are surging nearly 70 percent faster.
Worse, a large and growing percentage of these products are not labor-intensive goods like apparel and toys, but advanced manufacturing products from the sectors that create the highest-paying U.S. jobs on average. And these Chinese goods keep taking share from their U.S.-made counterparts in the American market.
China trade champions rightly note that many of these Chinese imports come from Chinese factories owned by U.S. multinational companies. But the explosive growth of American-owned or contracted production in China reveals that the trade agreements that have shaped U.S.-China economic relations were really outsourcing deals. Their main aim was helping these large U.S. firms supply American customers from China.
Yes, Americans get low-cost consumer goods in return. But largely because so many high-paying jobs have been displaced by imports from China and elsewhere, the inflation-adjusted wages of American workers have stagnated for more than 30 years -- a first in U.S. economic history.
Economic strategy
These destructive results were inevitable. As the China cheerleaders knew all along, most Chinese are far too poor to buy U.S. products with any regularity, if at all. In addition, China's economic strategy emphasizes producing and exporting, not importing.
As a result, Beijing heavily subsidizes manufacturing in China in myriad ways from keeping its currency artificially cheap to protecting Chinese industry from foreign competition that also depress imports and consumption in general.
The damage done to domestic manufacturing by Chinese and other imports, however, has an impact that transcends economics. U.S.-China trade is also endangering industries vital to maintaining a world-leading American military. Worse, the huge sums Beijing earns from its exports are making possible a military buildup that senior U.S. officials are openly criticizing.
Indeed, China's $148 billion trade surplus with the United States so far this year alone equals nearly 38 percent of the entire 2005 U.S. defense budget. Yet with few in Washington recognizing the link, U.S. trade policy literally keeps arming America's likeliest future rival.
Ultimately, however, lopsided U.S.-China trade flows -- which make up a whopping 28 percent of America's global trade deficit -- will backfire on the outsourcing multinationals, China itself, and the entire world economy.
Borrowing
For the U.S. market and the American consumer still remain the only significant engine of growth for China and other major trading powers. Trade-induced U.S. job and wage loss, however, are forcing the entire economy to pay for its consumption increasingly by borrowing, not through earnings.
If present trends continue, and an overstretched American economy goes into receivership, the Chinese, the American outsourcers, and everyone else profiting from the status quo will lose their best customers and global growth will come to a screeching halt.
To put its own economy and the entire international economic system on a safer footing, the full range of American trade policies needs dramatic overhaul. But the clear place to start is with America's China trade.
X Alan Tonelson is a research fellow with the U.S. Business and Industry Council Educational Foundation (www.usbusiness.org) and the author of "The Race to the Bottom" (Westview Press). Distributed by Knight Ridder/Tribune Information Services.