- The Washington Times - Sunday, August 31, 2008

Recently, the Washington Nationals played a series with the Colorado Rockies. It was great to watch the Nats score six runs in the second game, with Ronnie Belliard hitting a bases-loaded double.

But if sports reporting stopped there, it would give an incomplete impression of what happened. The Rockies won all three games.

Unfortunately, much business reporting of international trade competition stops with only half the score, misleading the public and policymakers.

Considerable cheering attended the Aug. 12 release of trade figures for June. The Commerce Department reported U.S. exports increased by 18.8 percent to $932.9 billion year-to-date over 2007. Commerce Secretary Carlos Gutierrez proclaimed, “Our export success underscores the robust competitiveness of U.S. business and agriculture in the global marketplace.” The Wall Street Journal gushed, “Trade has been one of the few bright spots of the U.S. economy, adding 2.42 percentage points to gross domestic product in the second quarter.”

Yet, the United States still showed a $56.8 billion deficit in June, meaning foreign nations scored more exports in the American market that American producers scored overseas. The 2008 deficit will likely be smaller than the $700.2 billion in 2007, but it will still be an alarming measurement of how America is losing in the global contest for jobs, industrial capacity and growth opportunities. In manufactured goods, the 2007 deficit was $679 billion. So even if the current 9 percent rise holds up, the 2008 deficit will still be an enormous $618 billion.

Exports boost growth by adding foreign markets to the U.S. market as support for American productive activity. But the other teams get to bat too. The Journal’s report incorrectly equated trade only with exports. The impact of “trade” is in the balance, what is optimistically called “net exports” from the days when the United States ran a trade surplus. Net exports today is a negative number in the calculation of GDP. Trade is slowing the economy.

Says Peter Morici, a University of Maryland School of Business professor and former chief economist at the U.S. International Trade Commission: “The deficit reduces GDP by at least $300 billion a year. … Thanks to the record trade deficits of the last 10 years, the U.S. economy is about $1.5 trillion smaller” than if trade had been balanced.

The logic is fundamental and inescapable. Markets are essential to support production and generate income. The international economic struggle is about expanding market access. The United States imports nearly twice as much as it exports, meaning it has lost a substantially larger market at home than it has been able to reach overseas.

Even with the dollar falling against the euro all year, the trade gap with the European Union increased in June. Beijing sets the value of its yuan to gain a competitive advantage, so U.S. exports to China declined in June, further increasing America’s largest bilateral trade deficit.

In the 1990s, it was common to call countries like China, India and Brazil “big emerging markets” for U.S. exports. Today, instead of pliant customers, they are ambitious rivals.

The Doha Round of trade talks collapsed because developing nations want to protect their home markets for strategic industries while adding the American market to support rapid growth. To the extent U.S. policy allows this to happen, American growth will be slowed.

Exports also fund imports. Traditionally, imports were limited to raw materials, agricultural goods, or specialty items than cannot be found or produced at home. Today, imports have exploded across the economy, and America can no longer pay for what it consumes from abroad. The U.S. has gone from the world’s largest creditor to the world’s largest debtor, with a rising tide of red ink since 1999.

When key commodities like oil go up in price, the U.S. financial position becomes markedly worse because it was already borrowing before the crisis. Past failures breed current (and future) vulnerabilities.

In contrast, success breeds success. China and the oil exporting states are loaning the money they have earned back at interest, furthering the transfer of wealth engendered by their trade surpluses. As these profitable trading states shift from bonds to equity investment, they will expand their control over a larger share of the world’s production.

The result will be a change in power across the globe, one that will work against American values and security.

America cannot export its way out of its negative trade predicament. It must work to recapture the largest, most accessible market available - the one inside the United States. The next president must redirect the flow of income and capital to the support of domestic economic activity rather than the growth of rivals overseas. If he does not, the many economic, financial and strategic problems he will inherit will only worsen.

William Hawkins is a senior fellow at the U.S. Business and Industry Council in Washington, D.C.

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