David Armstrong / SF Chronicle 20dec00
The United States is running a huge, record trade deficit. Figures released yesterday by the Commerce Department show America's imports outrunning exports by $33.2 billion in October and $302.5 billion for the first 10 months of 2000.
The previous record trade deficit for an entire year was $265 billion, set in 1999.
This sounds scary. But the trade deficit is actually the product of a robust U.S. economy, driven by consumer demand for affordable imported goods. Moreover, nearly half of all imports are actually goods made overseas by American companies: 46 percent in 1999, according to the Foreign Trade Division of the U.S. Census Bureau.
Given all that, economists say the big trade deficit is nothing to worry about -- at least not yet.
"It's not as bad as it looks," said Murray Weidenbaum, chair of the Center for the Study of American Business at Washington University in St. Louis. "The faster our economy grows, the faster our imports grow, and we're the fastest- growing major economy in the world."
Simultaneously, foreign investors, drawn by American prosperity, are investing heavily here, according to Weidenbaum, who recently chaired a congressional trade deficit review commission that included former U.S. Trade Representative Carla Hills and other luminaries.
But while the record trade deficit doesn't pose an immediate danger to the nation's economy, it could eventually cause harm. Economists say a huge trade deficit could start a downward spiral if it goes on too long and shakes foreign investors' confidence in American stability.
"So far, that money is coming in without any problem because this is the best place to invest," said Weidenbaum. "However, the concern is that something could happen, like a steep, prolonged decline in the stock market, that could discourage foreign investments. That's the horns of an economic dilemma."
Meanwhile, imports are at record levels thanks to American consumers, flush with cash, or at least quick with credit cards. Although the economy is slowing, consumer spending has held steady most of this year. Additionally, the dollar is still strong against major currencies such as the euro and the yen.
"Foreign goods are cheaper when the dollar is strong," said Stephen Levy, director of the Center for the Continuing Study of the California Economy. "It means consumers are finding great deals. No one puts a gun to their head to make them buy a Japanese car or a Finnish cell phone."
In any case, Levy emphasized, "The trade deficit is coming at a time when exports are surging."
This point is often overlooked: Although we're buying more foreign goods than ever, U.S. businesses are simultaneously selling plenty of goods and services to foreign markets. Indeed, many companies with overseas markets and operations are doing very well, especially high-technology firms, and tech-mad California is outperforming the country as a whole.
"California exports of goods for the first nine months of 2000 are up 21.5 percent, to $94.5 billion, from $77.8 billion in the same time last year," said Ted Gibson, chief economist at the California Department of Finance. "That compares to 14 percent growth for the U.S."
Strong markets in Canada, Mexico and much of east Asia for high-tech equipment and components, which comprise three-fourths of the Golden State's exported goods, account for that rapid growth.
Some regions are struggling, to be sure. Pennsylvania and the upper Midwest,
where the steel and automobile industries are clustered, have lost jobs. Even in those industries, however, lines of demarcation are not entirely clear, given that Japanese and German carmakers assemble cars in American plants.
As both exports and imports surge in an increasingly interdependent, globalized economy, it's hard to know exactly what an import is, especially for advanced countries like the United States where many multinational corporations with far-flung operations are based.
Typically, U.S. multinationals assemble goods abroad in low-cost countries, then bring them into the United States, where they are considered imports, despite the American provenance of their parent firms. Thus, electronic components assembled at, say, Intel Corp.'s big manufacturing plant in Penang, Malaysia, count as imports, even though Intel is a Santa Clara company. Rather than signaling an American decline or over-reliance on foreign-made goods, the process is a sign of American corporate strength.
What works for high-tech can also work for manufacturers of consumer goods such as Mattel toys, Nike shoes and Levi's blue jeans. Such goods have largely been made offshore since the 1980s. According to government statistics, 84 percent of imported apparel and clothing and 65 percent of rubber goods were made abroad by U.S. companies in 1999.
Levi Strauss, the San Francisco maker of jeans and other apparel, has 21 sewing plants, seven of them in the United States, according to Linda Butler, senior manager of communications. Levi owns factories outright but it also uses some 500 subcontractors, many of them foreign. With materials and services moving around, the product line is likely to be a multinational effort regardless of what it says on the "made in . . ." label on a pair of jeans.
Butler doesn't specify how much of Levi's product line is made abroad, but she underscores what U.S. multinationals have long maintained: "It's less costly to manufacture offshore, due to the price of raw materials, turnaround time, capacity and lead time."
Given these facts of business life, even American classics such as Barbie dolls are made abroad. Barbie, the icon from Mattel of El Segundo (Los Angeles County), does more than partner nicely with Ken; she contributes to the U.S. trade deficit.
Many Barbie dolls are assembled in China, which has surpassed Japan as the nation with the biggest trade surplus with the United States. The United States ran a $9.1 billion deficit with China in October and is lagging China by $61.1 billion so far in 2000.
That ballooning figure suggests that China is getting rich at America's expense, but this is not the case. China's share of a Barbie doll that sold for $10 in a California shopping mall was just 11 cents in taxes, licensing fees and workers' wages, according to an Associated Press report. "What China is mostly exporting is its cheap labor," the president of the Toy Manufacturers of America told the wire service.
Given the complex and counterintuitive nature of trade statistics, economists consider trade figures tricky, or at least limited, measures of national economic health.
"Trade deficits are one piece of the overall picture," according to Levy. Most economists, Levy and others say, look at gross national product as a broader, truer measure of economic health.
E-mail David Armstrong at darmstrong@sfchronicle.com
|
If you have come to this page from an outside location click here to get back to mindfully.org |