Monday, November 14, 2005

Trade Deficits: Are They REALLY Good?

From today's NYTimes:

The U.S. imported $66.1 billion more in goods and services than it exported in September, breaking the record $60.1 billion trade deficit of last February, the New York Times reports (11/11).

The trade deficit for the first nine months of 2005 totaled $529.8 billion, "about 18 percent higher than in the first nine months of 2004." the Times said. Some economists told the Times that higher oil prices and reduced aircraft sales were causing the 11% increase in the deficit from August, but others said the deficit "would have been wider even without the one-time effects" seen in September. "Only with very weak U.S. growth or a major drop in the U.S. dollar will the trade deficit improve on a sustained basis," Ethan Harris of Lehman Brothers told the Times.

The U.S. trade deficit with China rose 8.8% over last month to $21.0 billion in September, as exports to China fell 17% and imports rose 4%. For the first nine months of 2005, the U.S. trade deficit with China has grown 28% over the comparable period in 2004.

In a related development, the U.S. and China announced an agreement Tuesday "limiting China's clothing imports" to the U.S. for the next three years, the Times reported (11/9). The deal allows China to "increase its exports slightly each year until 2008, but puts limits on the growth," and adds to the categories of restrictions that the U.S. had already implemented. George Bush noted that the trade imbalance between the U.S. and China is "bothersome" to some people.

Some folks seem to think that the US can increase its wealth in a system where manufacturing is done offshore and US citizens are paid just "to think" and to finance--not to mention be teamsters, warehousemen, and retailers.

Maybe. One could look at the history of imperial Spain or imperial Britain--but then, that didn't work out so well, did it?

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