Posts Tagged ‘trade gap’

In all the hoopla surrounding the Republican presidential primaries, the release of President Obama’s 2013 budget, the Grammy’s, and the tragic passing of Whitney Houston, a truly significant report about America’s relentlessly growing trade deficit has been given very little media attention and is in danger of going unnoticed by the American public.

On Friday, February 10th, the U.S. Department of Commerce announced that the U.S. trade deficit for goods and services was $558 billion in 2011, a 12% increase over the trade deficit for all of 2010.  Over half of the U.S. trade deficit (53%) was due to a $295.5 billion trade deficit with China, a staggering sum which stands as the largest trade deficit between two countries in history. (full report)

As our country’s job-stifling trade deficit continues to expand rapidly, and our inability to get it under control is without a doubt undermining our economic recovery.

Let’s look a little closer at why the trade deficit grew in 2011.  U.S. exports experienced strong growth in 2011.  Exports increased by $265 billion for the year, an 11.4% increase over 2010.  However, these strong gains were more than offset by $324 billion increase in imports, a 13.8% increase over the previous year.

What does this mean? Even though we are making significant gains by increasing exports, which is creating jobs, we are simultaneously costing ourselves jobs by continuing to increase our consumption of imported goods. 

While some of the simultaneous increases of imports and exports are due to imported materials being used to make goods in the U.S. for export, the vast majority of our trade deficit is due to the trade imbalance we incur in consumer goods and automobiles. 

In 2011, the U.S. imported $768 billion worth of consumer goods and automobiles.  However, we exported just $309 billion in these same categories.  Overall, the U.S. experienced a $459 billion trade deficit in consumer goods and automobiles, which accounted for 82% of the overall U.S. trade deficit for 2011.

What does that mean for American consumers?  It means we have the power to control our collective economic destiny by adjusting our consumer behavior.  If enough of us will commit to buying American, we have it within our power to eliminate the U.S. trade deficit, which will keep more than a half-trillion dollars circulating in our economy, and will create jobs – probably millions of jobs – here in America.

That is why I am buying American.  I am determined to do my part to get our country back to prosperity.  Will you join me?  Take the Buy American Challenge today!

Until next time, here’s to doing what we can to support our country by buying American.


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I thought it would be a good time to highlight some expert opinion about the extreme importance of addressing the U.S. trade deficit.  I mean, who cares what Randy has to say?  Not many, believe me!  But how about Warren Buffett, a man generally regarded as one of the world’s most successful investors, and a man genuinely concerned with America’s future?

In 2003, Warren Buffet wrote a piece for Fortune Magazine called “America’s Growing Trade Deficit Is Selling The Nation Out From Under Us. Here’s A Way To Fix The Problem – And We Need to Do It Now.”  In this article, Buffett predicts all kinds of scary things for the future of our nation if we allow our enormous trade deficit to continue to expand (FYI, it has).  

In the article, Buffett describes the U.S. trade deficit this way: “In effect, our country has been behaving like an extraordinarily rich family that possesses an immense farm. In order to consume 4% more than we produce–that’s the trade deficit–we have, day by day, been both selling pieces of the farm and increasing the mortgage on what we still own.”

Better yet, I won’t summarize.  Here is the actual article:

America’s Growing Trade Deficit Is Selling The Nation Out From Under Us. Here’s A Way To Fix The Problem–And We Need To Do It Now.

By Warren E. Buffett

November 10, 2003

(FORTUNE Magazine) – I’m about to deliver a warning regarding the U.S. trade deficit and also suggest a remedy for the problem. But first I need to mention two reasons you might want to be skeptical about what I say. To begin, my forecasting record with respect to macroeconomics is far from inspiring. For example, over the past two decades I was excessively fearful of inflation. More to the point at hand, I started way back in 1987 to publicly worry about our mounting trade deficits–and, as you know, we’ve not only survived but also thrived. So on the trade front, score at least one “wolf” for me. Nevertheless, I am crying wolf again and this time backing it with Berkshire Hathaway’s money. Through the spring of 2002, I had lived nearly 72 years without purchasing a foreign currency. Since then Berkshire has made significant investments in–and today holds–several currencies. I won’t give you particulars; in fact, it is largely irrelevant which currencies they are. What does matter is the underlying point: To hold other currencies is to believe that the dollar will decline.

Both as an American and as an investor, I actually hope these commitments prove to be a mistake. Any profits Berkshire might make from currency trading would pale against the losses the company and our shareholders, in other aspects of their lives, would incur from a plunging dollar.

But as head of Berkshire Hathaway, I am in charge of investing its money in ways that make sense. And my reason for finally putting my money where my mouth has been so long is that our trade deficit has greatly worsened, to the point that our country’s “net worth,” so to speak, is now being transferred abroad at an alarming rate.

A perpetuation of this transfer will lead to major trouble. To understand why, take a wildly fanciful trip with me to two isolated, side-by-side islands of equal size, Squanderville and Thriftville. Land is the only capital asset on these islands, and their communities are primitive, needing only food and producing only food. Working eight hours a day, in fact, each inhabitant can produce enough food to sustain himself or herself. And for a long time that’s how things go along. On each island everybody works the prescribed eight hours a day, which means that each society is self-sufficient.

Eventually, though, the industrious citizens of Thriftville decide to do some serious saving and investing, and they start to work 16 hours a day. In this mode they continue to live off the food they produce in eight hours of work but begin exporting an equal amount to their one and only trading outlet, Squanderville.

To read the rest of this article (and I hope you will), click on this link: http://www.berkshirehathaway.com/letters/growing.pdf

Our trade deficit is a serious problem that we need to do something about soon.  We can’t wait around for Washington to fix this problem because if they were going to take bold action to address this, they would have done something by now.  However, every one of us can do our part to address this problem by buying American.  Please consider taking the Buy American Challenge today.

Until next time, here’s to doing what we can to support our country by buying American.


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This week, Dr. Donald J. Boudreaux, a prominent economist and the former Chairman of the Department of Economics at George Mason University in Fairfax, Virginia, penned an open letter to me in response to my Feb. 12th posting, “Record Crushed: U.S. Trade Deficit with China – $273 Billion in 2010 – Biggest Ever Between Two Countries.” He also posted the letter in the comments section of the posting on this blog.  In the open letter, Boudreaux posed several barbed questions about the Buy American Challenge effort.  Here is my response…

Dr. Boudreaux,

Thank you for visiting my blog.  I appreciate your comments and direct questions.  And I appreciate you thinking so highly of my posting that you penned an open letter to me on your own blog. I truly love a good debate, so this should be fun.  I realize, of course, I am choosing to engage in an economics debate with a renowned economist (or perhaps multiple economists), but hey, I guess eventually you have to play with the big boys. 

So let’s go question by question.  You asked:

– Because “buying American more often” means buying low-priced imports less often, Americans’ spending power will shrink. Americans will then have less money to spend at the movies, at local restaurants, on premium cable-tv packages, and the like. How do you know that the job losses that result from contractions in these industries won’t offset whatever job gains emerge in other industries from “buying American more often”?

I like how you phrase that… How do I know if jobs created from buying American won’t be offset in other areas?  Of course, I don’t pretend to know because these things do not have a direct relationship on each other; job creation and unemployment is caused by a myriad of factors.  So no one could ever know this sort of thing, much less be certain of it ahead of time.  But, since we are currently experiencing a huge jobs crisis in this country, and you are the one who argues for a less intuitive method of creating jobs in this country than I do, I would like to know: How do you know that the job losses that result from $500 billion leaving the country via the trade deficit – which most economists say is stifling job-creation in the U.S. – are fully offset by employment increases in other industries as you claim?  I don’t think you could possibly know that.

Your whole question starts with a faulty assumption.  The assumption you made is that buying American will reduce one’s buying power.  That is an entirely untrue assumption.  I have been on a strict buy American program for a year, and I have more money to buy things I want and need than I ever had.  Try to buy American for a week and you will see why.  When you buy American, you rarely make impulse purchases.  How many sweaters do you have in your closet?  More than you need?  Me too.  Practically every sweater I have in my closet was purchased on impulse.  That stops when you buy American because the majority of the consumable goods you see in malls and at Target are imported.  Buying American makes you think about whether you actually want to buy something because American-made things are a little harder to find.  Buying lots of stuff you don’t need reduces your buying power, not buying American.  Buying American actually helps people live within their means and increases buying power.  Plus, I am not saying everyone should entirely stop buying imports (so please do not pretend that is what I’m saying), what I am saying is that if Americans can cut their consumption of imported goods 25% and replace that with American-made goods, we will have no trade deficit, and many more jobs because of it.

Here is another wrong assumption. You assumed that American-made things are more expensive.  Certainly that is true sometimes, but not always.  There are lots of American-made items that are of equal quality that are less expensive than imported goods.  Are American-made New Balance running shoes more expensive than imported Nike? No.  Is Tito’s Handmade Premium Vodka (made in Texas) more expensive than imported Grey Goose? No.  People pay more for imported items sometimes because there is a higher perceived value simply because the product is imported.  But those misperceptions can be changed, and that is precisely what I am trying to do.  Buying American in these cases will increase one’s buying power.  Using your own logic, you should be a big supporter of buying American when American-made goods are less expensive.  Not only would we create jobs from the goods being made here, but we would also be increasing our buying power through cost savings, which would lead to more jobs created in other areas like restaurants, cable-TV, and the like.  I don’t think you can have it both ways.  If you think it is better to buy less expensive imported goods because of the impact it has on job creation in other areas, then you should be a big supporter of buying American-made in cases when the American-made product is less expensive. Do you support buying American in these cases?

Then there is the issue of quality.  A lot of the cheaper imported products are in fact poorer quality.  How many $5 umbrellas have you broken?  Me too.  They say, “They don’t make ‘em like they used to,” for a reason.  Much of the imported stuff we are buying is cheaper quality.  American-made stuff is more expensive sometimes, but in most cases, products made in the U.S.A. are higher quality and last longer. 

You asked:

– At least half of all U.S. imports are inputs used for production here at home by American firms. So if American firms substitute more costly American-made inputs for lower-priced imported inputs, many American firms’ costs will rise. These firms will lose market share. How do you know that the job losses that will result from these firms’ contractions and bankruptcies will not offset whatever job gains emerge from “buying American more often”?

Again, I object to the phrasing of the question.  My method of job creation and deficit-reduction is straight forward and intuitive.  Buying American-made things puts Americans to work who make those things.  That is plain and simple.  The burden of knowing is on you, since your position (as I understand it) is that American consumers should do nothing to correct the trade imbalance or create jobs for Americans by buying American.

I have never said that I think companies should stop using imported goods in production.  The reason I have not said that is because I advocate a consumer approach to addressing the trade deficit and unemployment problems in this country.  I believe that if we create demand for American-made goods by talking about the superior quality of American products and the positive impact buying American has on our economy – and millions of people start to do it – American firms will be profitable meeting that demand.  I’m not sure how we could make American companies use domestic inputs even if we wanted to.  But if the American people demand it, then companies will find a way to fill that demand profitably.  But we are a long way from that.  Right now you can’t even find the domestic parts content for most goods.  If you think somehow that American consumers buying American-made goods will cause bankruptcies, I think you are wrong. 

You asked:

– Because every dollar of America’s trade deficit is a dollar invested in the U.S. economy – investments that overwhelmingly expand the volume of America’s productive capital assets above what this volume would be without these foreign investments – eliminating America’s trade deficit will likely result in a net reduction of investments in the U.S. economy. How will less investment “secure our long-term economic future”?

Please reword this question and I will be happy to answer it.  I’m not sure what you are asking. 

Please answer this hypothetical:

You are considering purchasing one of two widgets.  One is an American-made product, produced by an American-owned company and made with 100% American parts content.  The other is an imported product, produced by a foreign-owned company and made with 0% American parts content.  They are both the exact same price.  In your opinion, which is better for the American economy?

A) Buying the American-made widget is better for the American economy

B) Buying the imported widget is better for the American economy

C) They are completely equal (neither A, nor B is better for the American economy)

I’d like to hear your other questions, and I would love to hear your answers to mine.

Thank you very much for commenting and starting what is sure to be a lively debate.


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U.S. trade deficit balloons to $500 billion behind spike in U.S.-China trade gap.

Big news about the U.S. trade deficit was reported yesterday.  The Department of Commerce revealed that the U.S. trade deficit for goods and services was nearly $500 billion in 2010 – a 33% increase over the trade deficit for all of 2009.  Over half of that was due to a $273 billion trade deficit with China.  The United States has a job-stifling trade deficit that is growing, and growing fast!

The deficit is growing because as Americans are starting to increase their purchasing again after a thrifty 2009, they are buying imported goods more than ever before, often from countries like China.  In fact, the U.S. trade deficit with China in 2010 is by far the biggest trade deficit a country has ever had with another single country in history. 

The U.S. trade deficit is having a significant negative impact on job growth.  Experts estimate that every $1 billion in exports creates an additional 6,000 jobs in the U.S.  Yet, despite $163 billion more in U.S. exports in 2010 (which created almost 1 million new jobs), jobs still are not being created in sufficient numbers to get the economy going or increase employment largely due to offsetting increases in imported goods.  While increasing exports is a worthwhile goal, we cannot look for that to be the sole solution to our trade imbalance problems.  We need Americans to cut back our reliance on imports by buying American.

We can solve our country’s economic problem ourselves by changing our buying habits just slightly and buying American more often.

The average adult consumes $700 per month in imported goods.  If we could reduce that to $517 per person per month, we would have no trade deficit at all. With no trade deficit, we would likely have 3-4% unemployment.  All we need to do is reduce our consumption of imported goods 25% to have jobs again in this country.  That will secure our long-term economic future (a.k.a. our children’s future). 

Can you cut 25% of the imported goods you buy and replace them with American-made goods?  If you will do that, you will have done your part to set our country back on the path to economic security.

That is why I am buying American.  Please join me.  Take the Buy American Challenge today!

Until next time, here’s to doing what we can to support our country by buying American.


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