The first sign that dangers of deficits are seen as real
At least some members of President Bush's Cabinet seem to be coming to the realization that they do have a role to play in reining in the runaway trade deficits that have become a trademark of this administration.
Just last year, President Bush offered a simplistic answer to the balance of trade between China and the United States. Americans he suggested, should buy fewer Chinese products. The implication was that his administration bore no responsibility for the train wreck that was sure to come if the United States continued to import cheap goods as if there were no tomorrow.
Even when U.S. Commerce Department reports showed a total trade deficit in 2005 was a record $805 billion, a one year increase of more than 20 percent, the silence from the White House was deafening. More than a quarter of the deficit -- $202 billion -- was racked up with China.
Unrealistic expectations
It was as if the administration expected the law of economics to be suspended -- or perhaps it was just hoping that the laws could be held an abeyance until 2008.
But trade deficits -- especially when they are coupled with running budget deficits -- have consequences. The nation is running on borrowed money, and much of that money is being provided by the foreigners from whom we are buying underpriced consumer goods and overpriced oil.
At some point, the growing deficit is going to weaken the dollar, slow down the economy, fuel inflation, bring higher interest rates, and, perhaps, bring on a recession.
Finally, on Tuesday, Commerce Secretary Carlos Gutierrez issued some advice to China. Perhaps the newly released January trade figures were enough to inspire action. The deficit jumped to $68.5 billion in the first month of the year, which was a record for any month. The 5.3 percent increase over December caught analysts by surprise.
A little mealy-mouthed
Rather than make a warning in his own name or that of the administration, Gutierrez issued his caution in the name of Congress. Not exactly an act of bravery, but at this point we'll take whatever we can get.
Speaking at a Washington luncheon sponsored by the Asia Society, Gutierrez said that China's failure to bring the value of its currency more in line with reality and to crackdown on intellectual and product piracy plays into the hands of American lawmakers eager to "build protectionist barriers around the U.S. market."
Fine, blame "protectionists." We don't think it is protectionism to stand up against currency manipulation, copyright infringement and a tendency of predatory nations to interpret a "free trade" policy as a license to steal. We think calling for economic integrity is simply a matter of self preservation. It's a distinction that has been largely lost on the Bush administration -- ask the Ohio and Pennsylvania pipe makers who saw their markets gobbled up by cheap Chinese imports that President Bush refused to regulate, even after the International Trade Commission recommended that he do so.
Gutierrez's warning to China is important not only for its break from the administration's laissez faire past, but because it comes just a few weeks before Chinese President Hu Jintao is scheduled to arrive in Washington.
Let's hope it is the first of many warnings, that it is more than window dressing, and that the Chinese take it seriously and react accordingly.