The Congressional Record is a unique source of public documentation. It started in 1873, documenting nearly all the major and minor policies being discussed and debated.
“U.S. TRADE DEFICIT” mentioning the U.S. Dept. of Commerce was published in the House of Representatives section on pages H7053-H7054 on June 25, 2007.
The publication is reproduced in full below:
U.S. TRADE DEFICIT
The SPEAKER pro tempore. Under a previous order of the House, the gentlewoman from Ohio (Ms. Kaptur) is recognized for 5 minutes.
Ms. KAPTUR. Mr. Speaker, the U.S. trade deficit continues its relentless spiral upwards. More red ink. More outsourced jobs. More foreign imports. Nothing seems capable of slowing it down, neither the misguided Bush administration policy of forcing down the value of the dollar on global markets, nor a half-hearted, ineffective and ultimately unsuccessful attempt to increase U.S. exports. America wants results, not rhetoric.
According to recent reports, the current account deficit, which is the broadest measure of the trade deficit, reached $193 billion just in the first quarter of this year. Every year the red ink gets deeper. This represents 5.7 percent of our gross domestic product. It is a heavy ball and chain on the economic growth in our country, and it is becoming heavier. The trade deficit in goods in the first quarter surpassed $200 billion, and it dwarfed surpluses in services and income payments.
Although you won't hear it from the economists on the coasts, the gargantuan deficit in goods is a dagger pointed at the heart of the economy in parts of the country such as I represent. We need action in Washington to stop the loss of jobs due to the trade deficit hemorrhage and unfair foreign competition, including the remaining closed markets of the world in first world nations like Japan.
The trade deficit, Mr. Speaker, reveals two fundamental weaknesses in our national economic policy. First is our unforgivable utter dependence on imported petroleum, the primary category of trade deficit. American consumers end up paying twice for the government's failure to declare energy independence, first when they fill up, and second, when their own economy is undermined by the global oil giants working in tandem with the repressive kingdoms of the Middle East and other places.
One would think that our government would have heard the warnings long enough and often enough to take action against our dangerous dependence on foreign oil, and I mean real action, like energy independence within a decade.
The President talked about it in his State of the Union speech, but he has not followed up with action. In fact, in his administration we are importing a billion more barrels of petroleum annually from other countries. So we should not be surprised, maybe, considering the President and Vice President are both oil men at heart.
The other weakness revealed by the current account deficit is our failure to develop a trade policy that makes as its priority the competitiveness of American jobs and American businesses. The government, rather, has pursued a policy that sends manufacturing jobs overseas to third world places like China, which represents a growing share of this red ink. Talk to tool and dye makers in Ohio, those who somehow have survived. Talk to workers in the auto industry or the auto parts sector; they must wonder whether it is the official policy of the United States Government to throw them to the wolves.
Where, they ask, is the policy for making the United States economy competitive here at home in each of the categories where we have lost the edge?
Together, the trade deficit with China from petroleum and from automotive products account for 95 percent of the total, and somebody's got to pay. In order to finance the deficit, Americans are borrowing and selling assets to the tune of approximately $600 billion a year. Anything in your town been put on the chopping block yet? Debt service amounts to approximately $2,000 a year for every working American. We are truly indebted.
Sooner or later somebody has to pay that bill, and the American people know who that somebody is. The Chinese government alone holds enough foreign reserves to purchase about 5 percent of the shares of all publicly traded U.S. companies. The U.S. trade deficit is the main source of that Chinese wealth. Dr. Peter Morici of the University of Maryland has written about the impact of our trade policy on economic growth. He notes that every dollar spent on imports that is not matched by a dollar of exports reduces domestic demand here at home and employment and shifts workers into activities where productivity is lower.
Productivity is at least 50 percent higher in industries that export and compete with imports, and reducing the trade deficit and moving workers into these industries would increase our gross domestic product. If the administration and Congress showed the fortitude to cut the trade deficit, and we're not talking about a balanced trade account, just cutting the deficit by half, the gross domestic product would increase by an estimated $250 billion, or more than $1,700 for every working American. That comes to 1 percent a year due to this halving of the deficit rather than the loss of 1 percent of economic growth every year due to this continuing failed trade policy, which has been in place for at least two decades.
If we could just cut the deficit in half, workers wages could once again keep pace with inflation, families would no longer fall further behind with each passing month, and we would have better jobs, better paying wages and better benefits.
Mr. Speaker, unfortunately we will not see that economic growth until our government deals with this trade deficit and stops the hemorrhage. That would require political courage. I would sure like to see some of it here in this town.
U.S. Records $193 Billion First Quarter Current Account Deficit Taxing
U.S. Growth
(By Peter Morici)
Today, the Commerce Department reported the first quarter current account deficit was $192.6 billion, up from $187.9 billion in the fourth quarter.
The deficit was 5.7 percent of GDP. The consensus forecast was $203 billion, and my published forecast was 195.8.
The current account is the broadest measure of the U.S. trade balance. In addition to trade in goods and services, it includes income received from U.S. investments abroad less payments to foreigners on their investments in the United States.
In the first quarter, the United States had a $24.1 billion surplus on trade in services and a $10.4 billion surplus on income payments. This was hardly enough to offset the massive
$200.9 billion deficit on trade in goods.
The huge deficit on trade in goods is caused by a combination of an overvalued dollar against the Chinese yuan, a dysfunctional national energy policy that increases U.S. dependence on foreign oil, and the competitive woes of the three domestic automakers. Together, the trade deficit with China and on petroleum and automotive products account for about 95 percent of the deficit on trade in goods and services.
To finance the current account deficit, Americans are borrowing and selling assets at a pace of about $600 billion a year. U.S. foreign debt exceeds $6 trillion, and the debt service comes to about $2,000 a year for every working American.
A significant share of these funds was loaned to Americans by foreign governments. China and other governments loaned Americans more than 4.3 percent of GDP.
The current account deficit imposes a significant tax on GDP growth by moving workers from export and import-competing industries to other sectors of the economy. This reduces labor productivity, research and development (R&D) spending, and important investments in human capital. In 2007 the trade deficit is slicing about $250 billion off GDP, and longer term, it reduces potential annual GDP growth to 3 percent from 4 percent.
Financing the Deficit
The current account deficit must be financed by a capital account surplus, either by foreigners investing in the U.S. economy or loaning Americans money. Some analysts argue that the deficit reflects U.S. economic strength, because foreigners find many promising investments here. The details of U.S. financing belie this argument.
In the first quarter, U.S. investments abroad were $420.8 billion, while foreigners invested $623.6 billion in the United States. Of that latter total, only $23.5 billion or less. than 4 percent was direct investment in U.S. productive assets. The remaining capital inflows were foreign purchases of Treasury securities, corporate bonds, bank accounts, currency, and other paper assets. Essentially, Americans borrowed $600 billion to consume 5.7 percent more than they produced.
Foreign governments loaned Americans $147.8 billion or 4.3 percent of GDP. That well exceeded net household borrowing to finance homes, cars, gasoline, and other consumer goods. The Chinese and other governments are essentially bankrolling U.S. consumers, who in turn are mortgaging their children's income.
The cumulative effects of this borrowing are frightening. The total external debt now exceeds $6 trillion. The debt service at 5 percent interest, amounts to $2000 for each working American.
The Chinese government alone holds enough U.S. and other foreign reserves to purchase about five percent of the shares of all publicly trade U.S. companies. The U.S. trade deficit is the primary driver behind this phenomenon.
Consequences for Economic Growth
High and rising trade deficits tax economic growth. Specifically, each dollar spent on imports that is not matched by a dollar of exports reduces domestic demand and employment, and shifts workers into activities where productivity is lower.
Productivity is at least 50 percent higher in industries that export and compete with imports, and reducing the trade deficit and moving workers into these industries would increase GDP.
Were the trade deficit cut in half, GDP would increase by about $250 billion or more than $1,700 for every working American. Workers' wages would not be lagging inflation, and ordinary working Americans would more easily find jobs paying higher wages and offering decent benefits.
Manufacturers are particularly hard hit by this subsidized competition. Through recession and recovery, the manufacturing sector has lost 3.2 million jobs since 2000. Following the pattern of past economic recoveries, the manufacturing sector should have regained about 2 million of those jobs, especially given the very strong productivity growth accomplished in durable goods and throughout manufacturing.
Longer-term, persistent U.S. trade deficits are a substantial drag on growth. U.S. import-competing and export industries spend three-times the national average on industrial R&D, and encourage more investments in skills and education than other sectors of the economy. By shifting employment away from trade-competing industries, the trade deficit reduces U.S. investments in new methods and products, and skilled labor.
Cutting the trade deficit in half would boost U.S. GDP growth by one percentage point a year, and the trade deficits of the last two decades have reduced U.S. growth by one percentage point a year.
Lost growth is cumulative. Thanks to the record trade deficits accumulated over the last 10 years, the U.S. economy is about $1.5 trillion smaller. This comes to about $10,000 per worker.
Had the Administration and the Congress acted responsibly to reduce the deficit, American workers would be much better off, tax revenues would be much larger, and the Federal deficit could be eliminated without cutting spending.
The damage grows larger each month, as the Bush administration dallies and ignores the corrosive consequences of the trade deficit.
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