We have all heard about our trade deficit with China. The story goes that China’s currency is undervalued, they have shockingly low wages, no health care to speak of, no pensions to pay for, no environmental regulations, and they are working themselves to death. Unfortunately, that is only half the story . . . over the fold for the more depressing part
While many of the claims about China’s economic advantages are true, the real point of the Chinese trade deficit narrative is to make it seem like there is nothing we can do because we just can’t compete with people who will work for virtually nothing and who receive no benefits. Therefore, we don’t need to change anything at home and can occasionally yell at the Chinese to float their currency. In 2006 our trade deficit with China was a staggering $232 billion (US Gov).
But there is another trade deficit of $220 billion with Canada, Germany, Italy, Japan and Ireland(US Gov). These countries share high wages, full health care, generous pensions, strong environmental laws, and shorter working hours. Yet they run a combined trade surplus with the US as large as China’s. This is the part of the story that the President, Congress, and the MSM has failed to raise. We are being crushed economically by people with at least as high, and likely higher, standards of living.
Economists argue about the likely causes of our lack of competitiveness. Their arguments will remain purely academic, however, until we face up to the sad truth that we are failing. The situation is even worse if you extract two major sectors of our exports that are heavily subsidized – agricultural products and defense/aerospace.
We also have a large trade deficit with Nigeria, Venezuela, Saudi Arabia and Mexico. Guess what those four countries share in common. We are an oil dependent and economically uncompetitive country. Soon or late a country that needs huge imports of oil but cannot produce competitive exports will face profound economic difficulties.
What becomes clear just from the raw figures is the degree to which the narrative of the Chinese is misleading – and I think more that a little xenophobic. Yes China is a large part of the problem, but our deficit with first world countries is equally large. If the US cannot address this core problem, our economy will eventually suffer a major reversal. Our elected officials need to drop the "Yellow Peril" story about China and take a long hard look at some of the problems a little closer to home.
2006 Trade Deficit Top 10
China -232,548.62
Japan -88,441.97
Canada -73,159.45
Mexico -64,091.56
Germany -47,753.36
Malaysia -23,982.36
Nigeria -25,685.64
Venezuela -28,153.42
Italy -20,085.55
Ireland -20,124.66
(http://www.census.gov/foreign-trade/top/dst/2006/12/deficit.html)
Note: Canada is a major exporter of Oil, Gas, and Coal to the US. I have only counted there non-energy exports to the US in combining them with Germany, Italy, Japan, and Ireland.