Chasing the Dragons: America's Trade Policy With Asia

By: A. Scott Piraino

                Last year the US trade deficit soared sixty percent, to a new record high of 271 billion dollars. Increasing demand for imports has caused our trade gap to increase exponentially over the last twenty years. Our trade deficits since 1980 add up to nearly three trillion dollars. That's the second biggest transfer of wealth in history, second only to our national debt.

                Nowhere is this transfer of wealth more apparent than in East Asia. Over the last twenty years growing trade surpluses with the US have fueled an unprecedented economic expansion. Since 1980, Pacific Rim exports to the US increased by over five hundred percent. During the same period, East Asia's economies grew at an annual rate three times faster than the US. Today over one third of the region's output is exported to the United States.

                In key industries such as computers, electronics, and automobiles, America is dependent on Asian imports. Even last year's trade gap doesn't tell the whole story. Our merchandise trade deficit totaled a whopping 347 billion dollars. This larger deficit was offset by surpluses in agriculture and "services", a very broad category that includes tourism and foreign student tuition.  

                What happened to our country while we traded food, vacations, and college degrees for merchandise, and lost three trillion dollars in the process? While the Pacific Rim was booming, corporate downsizing, factory closures, and mass layoffs became a way of life for American workers. Per capita incomes have doubled throughout the Pacific Rim in the last twenty years, while wages in the US remain stuck at 1989 levels. The US has lost over two million manufacturing jobs since 1980. Those jobs have been replaced, but with lower paying work in the service sector. The future for US wage earners looks bleak. Our Commerce Department projects that temp agencies will soon be the number one employer, followed by restaurants and bars.

                Three years ago the Pacific Rim added insult to injury. Too much capital investment, cronyism, and shoddy bank loans collapsed the high-flying economies of East Asia. In order to avoid a global financial meltdown, the industrialized nations (read taxpayers), extended 168 billion dollars in loans to the beleaguered Asian banks. Since the Asian economic crisis began, our trade deficits have doubled, and the US has lost another 400,000 manufacturing jobs. As for the nations we helped bail out, they have increased their exports to America by twenty percent.

                In 1998, the year after Asia's bank crisis began, our federal budget deficit disappeared. But unlike the budget deficit, don't expect our trade gap to disappear anytime soon. Instead we will be told that these trade deficits are somehow normal, or at least unavoidable. Alan Greenspan, supposedly a neutral central bank manager, chimed in recently by calling protectionism "unwise and surely self defeating". He went on to call downsized and wage challenged workers "victims of progress".

                Mr. Greenspan's comments are typical of our national managers. Despite the preponderance of evidence that we are losing a trade war, protectionism remains out of fashion in the United States. Most of our economists and politicians cling to the belief that free trade will create millions of jobs for Americans and raise our standard of living. Technology and information industries will supplant manufacturing, and link the world into one giant market for goods and services. What goes unsaid is that any "victims of progress" are worth the creation of this new global economy.

                But is the global economy to blame for our trade deficits, or have our trade deficits created the global economy? The world is wealthier than ever because the world has spent our money, three trillion dollars of it. For the rest of the world the global economy means new investment, new jobs, and rising prosperity. For Americans globalization is a kinder, gentler word for the export of jobs, factories, and technology. A small elite of investors and multinational corporations profits most from the global economy, while the American people sacrifice their incomes  to create it.

                So what is the true cost of our trade deficits? It's how much wealthier we would be if the economic boom that enriched East Asia had enriched our country instead. Ultimately, it's the difference between America today, and the America that would exist if we had spent three trillion dollars here instead of exporting it.