[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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