[Congressional Record Volume 153, Number 103 (Monday, June 25, 2007)]
[House]
[Pages H7053-H7054]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                           U.S. TRADE DEFICIT

  The SPEAKER pro tempore. Under a previous order of the House, the 
gentlewoman from Ohio (Ms. Kaptur) is recognized for 5 minutes.
  Ms. KAPTUR. Mr. Speaker, the U.S. trade deficit continues its 
relentless spiral upwards. More red ink. More outsourced jobs. More 
foreign imports. Nothing seems capable of slowing it down, neither the 
misguided Bush administration policy of forcing down the value of the 
dollar on global markets, nor a half-hearted, ineffective and 
ultimately unsuccessful attempt to increase U.S. exports. America wants 
results, not rhetoric.
  According to recent reports, the current account deficit, which is 
the broadest measure of the trade deficit, reached $193 billion just in 
the first quarter of this year. Every year the red ink gets deeper. 
This represents 5.7 percent of our gross domestic product. It is a 
heavy ball and chain on the economic growth in our country, and it is 
becoming heavier. The trade deficit in goods in the first quarter 
surpassed $200 billion, and it dwarfed surpluses in services and income 
payments.
  Although you won't hear it from the economists on the coasts, the 
gargantuan deficit in goods is a dagger pointed at the heart of the 
economy in parts of the country such as I represent. We need action in 
Washington to stop the loss of jobs due to the trade deficit hemorrhage 
and unfair foreign competition, including the remaining closed markets 
of the world in first world nations like Japan.
  The trade deficit, Mr. Speaker, reveals two fundamental weaknesses in 
our national economic policy. First is our unforgivable utter 
dependence on imported petroleum, the primary category of trade 
deficit. American consumers end up paying twice for the government's 
failure to declare energy independence, first when they fill up, and 
second, when their own economy is undermined by the global oil giants 
working in tandem with the repressive kingdoms of the Middle East and 
other places.
  One would think that our government would have heard the warnings 
long enough and often enough to take action against our dangerous 
dependence on foreign oil, and I mean real action, like energy 
independence within a decade.
  The President talked about it in his State of the Union speech, but 
he has not followed up with action. In fact, in his administration we 
are importing a billion more barrels of petroleum annually from other 
countries. So we should not be surprised, maybe, considering the 
President and Vice President are both oil men at heart.
  The other weakness revealed by the current account deficit is our 
failure to

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develop a trade policy that makes as its priority the competitiveness 
of American jobs and American businesses. The government, rather, has 
pursued a policy that sends manufacturing jobs overseas to third world 
places like China, which represents a growing share of this red ink. 
Talk to tool and dye makers in Ohio, those who somehow have survived. 
Talk to workers in the auto industry or the auto parts sector; they 
must wonder whether it is the official policy of the United States 
Government to throw them to the wolves.
  Where, they ask, is the policy for making the United States economy 
competitive here at home in each of the categories where we have lost 
the edge?
  Together, the trade deficit with China from petroleum and from 
automotive products account for 95 percent of the total, and somebody's 
got to pay. In order to finance the deficit, Americans are borrowing 
and selling assets to the tune of approximately $600 billion a year. 
Anything in your town been put on the chopping block yet? Debt service 
amounts to approximately $2,000 a year for every working American. We 
are truly indebted.
  Sooner or later somebody has to pay that bill, and the American 
people know who that somebody is. The Chinese government alone holds 
enough foreign reserves to purchase about 5 percent of the shares of 
all publicly traded U.S. companies. The U.S. trade deficit is the main 
source of that Chinese wealth. Dr. Peter Morici of the University of 
Maryland has written about the impact of our trade policy on economic 
growth. He notes that every dollar spent on imports that is not matched 
by a dollar of exports reduces domestic demand here at home and 
employment and shifts workers into activities where productivity is 
lower.
  Productivity is at least 50 percent higher in industries that export 
and compete with imports, and reducing the trade deficit and moving 
workers into these industries would increase our gross domestic 
product. If the administration and Congress showed the fortitude to cut 
the trade deficit, and we're not talking about a balanced trade 
account, just cutting the deficit by half, the gross domestic product 
would increase by an estimated $250 billion, or more than $1,700 for 
every working American. That comes to 1 percent a year due to this 
halving of the deficit rather than the loss of 1 percent of economic 
growth every year due to this continuing failed trade policy, which has 
been in place for at least two decades.
  If we could just cut the deficit in half, workers wages could once 
again keep pace with inflation, families would no longer fall further 
behind with each passing month, and we would have better jobs, better 
paying wages and better benefits.
  Mr. Speaker, unfortunately we will not see that economic growth until 
our government deals with this trade deficit and stops the hemorrhage. 
That would require political courage. I would sure like to see some of 
it here in this town.

U.S. Records $193 Billion First Quarter Current Account Deficit Taxing 
                              U.S. Growth

                           (By Peter Morici)

       Today, the Commerce Department reported the first quarter 
     current account deficit was $192.6 billion, up from $187.9 
     billion in the fourth quarter.
       The deficit was 5.7 percent of GDP. The consensus forecast 
     was $203 billion, and my published forecast was 195.8.
       The current account is the broadest measure of the U.S. 
     trade balance. In addition to trade in goods and services, it 
     includes income received from U.S. investments abroad less 
     payments to foreigners on their investments in the United 
     States.
       In the first quarter, the United States had a $24.1 billion 
     surplus on trade in services and a $10.4 billion surplus on 
     income payments. This was hardly enough to offset the massive 
     $200.9 billion deficit on trade in goods.
       The huge deficit on trade in goods is caused by a 
     combination of an overvalued dollar against the Chinese yuan, 
     a dysfunctional national energy policy that increases U.S. 
     dependence on foreign oil, and the competitive woes of the 
     three domestic automakers. Together, the trade deficit with 
     China and on petroleum and automotive products account for 
     about 95 percent of the deficit on trade in goods and 
     services.
       To finance the current account deficit, Americans are 
     borrowing and selling assets at a pace of about $600 billion 
     a year. U.S. foreign debt exceeds $6 trillion, and the debt 
     service comes to about $2,000 a year for every working 
     American.
       A significant share of these funds was loaned to Americans 
     by foreign governments. China and other governments loaned 
     Americans more than 4.3 percent of GDP.
       The current account deficit imposes a significant tax on 
     GDP growth by moving workers from export and import-competing 
     industries to other sectors of the economy. This reduces 
     labor productivity, research and development (R&D) spending, 
     and important investments in human capital. In 2007 the trade 
     deficit is slicing about $250 billion off GDP, and longer 
     term, it reduces potential annual GDP growth to 3 percent 
     from 4 percent.


                         Financing the Deficit

       The current account deficit must be financed by a capital 
     account surplus, either by foreigners investing in the U.S. 
     economy or loaning Americans money. Some analysts argue that 
     the deficit reflects U.S. economic strength, because 
     foreigners find many promising investments here. The details 
     of U.S. financing belie this argument.
       In the first quarter, U.S. investments abroad were $420.8 
     billion, while foreigners invested $623.6 billion in the 
     United States. Of that latter total, only $23.5 billion or 
     less. than 4 percent was direct investment in U.S. productive 
     assets. The remaining capital inflows were foreign purchases 
     of Treasury securities, corporate bonds, bank accounts, 
     currency, and other paper assets. Essentially, Americans 
     borrowed $600 billion to consume 5.7 percent more than they 
     produced.
       Foreign governments loaned Americans $147.8 billion or 4.3 
     percent of GDP. That well exceeded net household borrowing to 
     finance homes, cars, gasoline, and other consumer goods. The 
     Chinese and other governments are essentially bankrolling 
     U.S. consumers, who in turn are mortgaging their children's 
     income.
       The cumulative effects of this borrowing are frightening. 
     The total external debt now exceeds $6 trillion. The debt 
     service at 5 percent interest, amounts to $2000 for each 
     working American.
       The Chinese government alone holds enough U.S. and other 
     foreign reserves to purchase about five percent of the shares 
     of all publicly trade U.S. companies. The U.S. trade deficit 
     is the primary driver behind this phenomenon.


                    Consequences for Economic Growth

       High and rising trade deficits tax economic growth. 
     Specifically, each dollar spent on imports that is not 
     matched by a dollar of exports reduces domestic demand and 
     employment, and shifts workers into activities where 
     productivity is lower.
       Productivity is at least 50 percent higher in industries 
     that export and compete with imports, and reducing the trade 
     deficit and moving workers into these industries would 
     increase GDP.
       Were the trade deficit cut in half, GDP would increase by 
     about $250 billion or more than $1,700 for every working 
     American. Workers' wages would not be lagging inflation, and 
     ordinary working Americans would more easily find jobs paying 
     higher wages and offering decent benefits.
       Manufacturers are particularly hard hit by this subsidized 
     competition. Through recession and recovery, the 
     manufacturing sector has lost 3.2 million jobs since 2000. 
     Following the pattern of past economic recoveries, the 
     manufacturing sector should have regained about 2 million of 
     those jobs, especially given the very strong productivity 
     growth accomplished in durable goods and throughout 
     manufacturing.
       Longer-term, persistent U.S. trade deficits are a 
     substantial drag on growth. U.S. import-competing and export 
     industries spend three-times the national average on 
     industrial R&D, and encourage more investments in skills and 
     education than other sectors of the economy. By shifting 
     employment away from trade-competing industries, the trade 
     deficit reduces U.S. investments in new methods and products, 
     and skilled labor.
       Cutting the trade deficit in half would boost U.S. GDP 
     growth by one percentage point a year, and the trade deficits 
     of the last two decades have reduced U.S. growth by one 
     percentage point a year.
       Lost growth is cumulative. Thanks to the record trade 
     deficits accumulated over the last 10 years, the U.S. economy 
     is about $1.5 trillion smaller. This comes to about $10,000 
     per worker.
       Had the Administration and the Congress acted responsibly 
     to reduce the deficit, American workers would be much better 
     off, tax revenues would be much larger, and the Federal 
     deficit could be eliminated without cutting spending.
       The damage grows larger each month, as the Bush 
     administration dallies and ignores the corrosive consequences 
     of the trade deficit.

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