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 Freedom to Trade
 
Worry Over Trade Deficits
Townhall.com, United States Wednesday, November 10, 2010


The annual trade deficit of the United States is less than fouir percentage of the country's GDP. It is not something ordinary Americans should worry about. Americans buy more goods and services from foreigners than they buy from us. Americans are not made worse off by the $ 70,000 current account trade deficit, writes Walter E Williams in Townhall.com.

At the recent Group of 20 (G 20) meeting, U.S. Treasury Secretary Timothy F. Geithner called upon the largest industrialized economies to get their current account balance -- whether a surplus or a deficit -- below 4 percent of their gross domestic product by 2015. Four countries have current account surpluses exceeding 4 percent: Saudi Arabia (6.7 percent), Germany (6.1 percent), China (4.7 percent) and Russia (4.7 percent.) Countries like Russia and Saudi Arabia that are "structurally large exporters of raw materials" would be exempt from the 4 percent limit, so the pressure of the U.S. proposal falls mainly on China and Germany. Our annual trade deficit of $500 billion is less than 4 percent of our GDP.

Acting on behalf of various interest groups, politicians fret over trade deficits but is it something that ordinary Americans ought to worry about? What politicians and inept people in the news media, whose duty is to inform, never bring up is that in the international trade arena, there are two accounts. One is called the current account, which consists of goods and services exchanged between Americans and foreigners. That's the account where we have a large trade deficit. Americans buy more goods and services from foreigners than they buy from us.

...

It doesn't work out that way. In our example, instead of purchasing American goods with the $70,000, Toyota might put the money toward building a Toyota plant, as it has already done, in Huntsville, Ala., that employs nearly 800 Americans. As a result of that current account deficit of $70,000, we have a capital account surplus (net inflow of capital into the U.S.) of $70,000.

Here's my question to you: Have Americans been made worse off because of the $70,000 current account trade deficit? I'd answer no.

...

As a people, we should be proud to be a nation in which millions of people around the world want to buy into.

What about the argument that American producers are undercut by cheap goods imported from low-wage countries like China? Whose fault is this? The answer is easy. If American consumers refused to buy goods produced in China, there would be no Chinese-made goods on store shelves. American consumers who prefer lower prices to higher prices are the true enemy of American companies and their unions whining about "free but fair trade." They should show up in front of Walmart and other sellers of foreign products and denounce American consumers who buy foreign-made products. That would be honest. The "free trade but fair trade" lobby finds it more effective to pursue their agenda by stealth -- namely intimidate and bribe congressmen into enacting tariffs and quotas.

This article was published in the Townhall.com on Wednesday, November 10, 2010. Please read the original article here.
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