The U.S. trade deficit jumped to $53.1 billion in June, the highest in nearly three years, and reached $373.6 billion during the first six months of 2011.
That $373.6 billion got sucked out of the USA in just six months. And was replaced by debt. Read the trade report that the Census Bureau issued today. It’s a harrowing document of what’s wrong with America.
During the financial crisis, consumers and businesses cut back purchases. Imports, and our trade deficit, dropped to levels not seen in years. By May 2009, the trade deficit stood at $25.5 billion, and for a few days there was hope that the trend would continue and allow us to climb out of the hole. But already, our consumption society had been revived with the trillions of dollars that the Fed had printed, and by June 2009, that flow of free money reversed the positive trend. Since then, we’ve been heading back into fiasco.
By way of excuse, we say a big part of our imports is oil. Well, true. Crude oil and other petroleum products combined were $33.4 billion in June and $190 billion year-to-date. But here is the killer: Germany and Japan, which both have huge trade surpluses, import all of their oil and natural gas. And they import a significant part of their food. And raw materials.
America is rich in natural resources. We’re one of the larger oil producers in the world. We produce all of our natural gas. We produce more food than we can eat…. The list goes on. And yet, we consume like maniacs, much more than we produce, much more than we earn, and so we consume with borrowed and printed money, and now look where that has gotten us.
This scenario is made worse by falling real wages (Aug 9, Bureau of labour Statistics: they fell 2.1% from Q1 to Q2) and rising inflation, which are gnawing insidiously at our purchasing power. But to push consumption further, we borrow on every level—individual, corporate, and government. So it is no surprise that consumer borrowing spiked in June by the largest amount since 2007 (Aug 5, Federal Reserve Consumer Credit report).
Every time a U.S. company outsources production or services to entities overseas, or buys from foreign suppliers when it used to buy from domestic suppliers, it adds to the trade deficit. A prime and at once curious example is the San Francisco Bay Bridge, part of which was built in China. Another example is a big beneficiary of stimulus funds, SunPower. It announced a few days ago that it would open a manufacturing plant in Mexico. On an individual level, every time we buy an iPhone, a laptop, a car, just about anything really, we add to the trade deficit.
Trade is good and necessary. But consuming more than we earn and produce is destructive to our economy and ultimately to our jobs—we sent 16.6 million jobs overseas since 2000. Yet I’m all for free trade. The solution lies elsewhere.
The solution is at once simple and complex, and not very palatable: nudge down consumption. Of everything and on every level. And produce for export. It’s hard. And it may be painful in the short run—for Germany, Japan, and China. It would require an effort by consumers, companies, and governments alike. It would also require that the Fed turn off the money spigot for good and weld it shut. But it would regenerate an America that our children can still be proud of.