Trade deficit should be a wake-up call in Washington

The nation's $726 billion trade deficit for 2005 should surprise no one. But it should alarm people throughout the United States and politicians in Washington. Past indications are that President Bush will show no sign of alarm or any inclination to act in a way that would keep the deficit from approaching $1 trillion before he leaves office.
The trade deficit increased by 17.5 percent last year. If it were to increase by a similar amount this year and next, the total for 2007 would be just over $1 trillion.
It is amazing that no one in the White House and an alarmingly few people in the Capitol have shown the honesty and courage to declare that trade deficits such as these are a real threat to this nation's economy and well-being.
The see-no-evil, hear-no-evil crowd in Washington have been willing to take the same speak-no-evil policy toward the trade deficit that they have toward the budget deficit. The most common method of pretending nothing is amiss is to claim that as a percentage of the nation's economy, these deficits are no worse than they have been in the past.
An all-time high
That can no longer be said about the trade deficit. The United States imported $725.8 billion more in goods and services than it exported in 2005, which is an all-time high in dollar terms and also as a proportion of the economy. The figure is equal to 5.8 percent of gross domestic product. It was just 4.5 percent in 2003.
The trade deficit has doubled since President Bush took office. The tenor of his response has been, if Americans don't want to contribute to the trade deficit they shouldn't buy foreign-made goods.
That sounds true enough, but it is disingenuous.
The largest entity in the trade imbalance is China and the administration has been consistently soft on China.
China has refused to allow its currency to float on the open market. By artificially keeping the value of its currency low, China makes its exports to the United States cheaper and U.S. exports to China more expensive. The Bush administration has accepted as adequate a token effort China made toward parity.
On trade issues, the administration has refused to use even the laws that are in place to address unfair trade.
In December, the president rejected a recommendation by the International Trade Commission that limits be place on the import of Chinese pipe to the United States. When President Bush took office, China sent about 9,000 tons of standard pipe to U.S. markets. By 2005, that amount had increased nearly 40-fold. The ITC recommended that China be held to 160,000 tons, but the president refused to place any limits on China's pipe exports.
That decision endangers hundreds, if not thousands, of Mahoning and Shenango valley jobs.
Other industries have fared just as badly. In October, U.S. trade negotiators threw up their hands after being unable to get China to agree to reduce its textile imports to the United States. U.S. manufacturers say 31 textile plants were forced to close in 2005 because of the sharp increase in Chinese shipments to America.
Cash cow
There's a connection that cannot be ignored between the administration's domestic fiscal policy and its willingness to tolerate enormous trade deficits. Those trade dollars end up in foreign banks, which invest in the U.S. treasury notes that allow the government to continue to borrow and spend.
Congress and the American people should asking whether the administration is so dependent on borrowed money that it is unwilling or unable to protect American industry and workers from the effects of unfair trade.
Failing to correct the imbalance now will have consequences. Eventually, foreign investors are going to slow their rate of investment and begin cashing in their bonds. When they do, it is going to drive up interest rates and dry up the borrowed money to which the government has become addicted. And that's the best-case scenario. A run on U.S. notes could precipitate a worldwide depression.
It is unfortunate that the administration has not taken the problems inherent in such huge deficits more seriously. It now faces the possibility of a reactionary response in Congress. Sens. Lindsey Graham, R-S.C., and Byron Dorgan, D-N.D., introduced a bill Thursday that would revoke normal trade relations with China. The senators cited the worsening trade deficit, currency manipulation and Chinese piracy of copyright American products as reasons for their legislation.
The implications if such legislation were passed would be enormous. But perhaps the threat posed by the bill and the debate it will generate will be enough to get the administration to talk with those trading "partners" who have been treating the United States as a patsy.