The recent uproar over lead paint in children’s toys has drawn attention to an issue that has been plaguing the U.S. for quite some time now, but is often overlooked—a growing trade deficit. The trade deficit is the difference between the value of goods imported and the value of goods exported, which is of course not to be confused with the budget deficit—the difference between how much the U.S. government spends and how much it collects in taxes. The trade deficit in the United States has been growing rapidly since 1997 and now stands at about $750 billion. This means that the value of everything the U.S. imported (cars, computers, etc.) is $750 billion more than the value of everything we exported (aircraft parts, agricultural products, etc.) The increase in trade deficit is due mostly to the growing volume of Chinese exports and the growing cost of importing oil to the United States.
While having a large trade deficit isn’t necessarily “evil,” it does pose some unique problems to U.S. consumers. First of all, the imports from many countries do not undergo quite as strict health and safety checks as those in the United States. It’s impractical to inspect all imports as they come into the U.S., so many health risks go unnoticed. Secondly, a high trade deficit can be linked to a low domestic savings rate (the savings rate in the U.S. is between 0 percent and 1 percent), which can put the U.S. economy at all sorts of risks.
If the U.S. population doesn’t save and invest money, it leaves an opening for foreigners to take its place. You may remember the high-profile controversy last year over the Dubai Ports deal, which split Congress and got the president himself involved. That situation was brought about by the fact that the government of the United Arab Emirates had surplus U.S. dollars from oil exports it was looking to invest. As long as the trade deficit exists, there will always be pressure from foreigners to invest in U.S. markets in situations similar to the Dubai Ports deal.
Having such a low savings rate also puts the U.S. at risk for a recession. People have been depending on the appreciation of the real estate market for the past three years or so to support their spending habits. Now that the real estate market has peaked, the burden of debt is being placed on the banking community. If you’ve been following the financial markets lately, you can tell that investors are worried that something might give. Like it or not, it’s a global marketplace now, and everyone is interdependent on everyone else. All it takes is the slightest perturbation to the norm—either home or abroad—to spiral into a recession. If the United States goes into a recession, we take the rest of the world down with us.
Editor’s Note: “Liberal Bias” runs biweekly and is an opinion column granted by the Editorial Board to the College Democrats.
