Trade deficits and their long-term effects on the nation’s well-being aren’t something Americans tend to think much about. We buy cars, clothes, TVs and appliances without looking at labels or paying much attention to where things are made. What drives our buying decisions most often are price and quality considerations, whether for an individual buying a new SUV or an auto manufacturer buying the steel that’s used to make that vehicle.
Looked at in other ways, however, the cumulative effects of Americans’ buying practices are more complex and problematic. Each year we’re buying much more from other countries than we’re selling them. The 2017 trade deficit alone was over $500 billion. From 2001 to 2018, U.S. trade deficits totaled over $13 trillion. Yes, that’s trillion with a T.
Where does the money come from to finance these massive trade deficits? Much of it comes from the very countries with which the U.S. has big trade imbalances. As foreign companies pile up U.S. dollar profits on all the products they flood the American market with, a good portion of those profits end up being loaned back to Americans. In a very real sense, we buy that flat-screen TV or foreign-made car on credit from the countries selling them to us.
Over time, that debt has accumulated to dangerous levels, especially when it’s added to the federal government’s deficits, which pile up from year to year. The national debt today stands at almost $21 trillion, and as much as a third of it is held by foreign lenders. And then there’s the $14 trillion in business debt and $13 trillion in individual debt that weighs down our economy.
All that American debt adds up to an astronomical $61 trillion, give or take a trillion. That’s more than three times the $18 trillion per year our national economy generates. And it’s about $200,000 of debt for every American. (If you doubt any of these numbers, check out www.usdebtclock.org.)
All of which leads to the current debate raging over President Trump’s decision to impose a 25 percent tariff on imported steel and 10 percent on imported aluminum. His aim is to help U.S. steel and aluminum producers and workers, who have felt the effects of cheap, foreign-made steel and aluminum dumped below cost into the U.S. And despite his usual unhelpful bluster that trade wars are good and easy to win, Trump is onto something important. The U.S. has suffered financially because of the repeated dumping of these metals into our country.
While that may help make things built with these metal cheaper here, there is a cost in American companies’ lost profits and American workers’ lost jobs. It’s impossible for our companies and their workers to compete fairly with the low wages and lax labor and environmental standards in China and other Asian nations. And the president’s assertion that our national security is threatened by this dumping also has merit. The harm done by the dumping may not make us more vulnerable militarily, but it does make us more vulnerable economically and socially, which also affects the nation’s security.
So what should Trump and Congress do now? They should not get into a war with each other over trade unfairness created by other countries. They should instead firmly demand that our trading partners open up all relevant trade agreements to incorporate a fair-trade standard that reduces dumping and lowers tariff barriers to American products shipped overseas. It’s not fair that China dumps steel around the world for less than it cost to manufacture. Nor is it fair, as Trump points out, that German cars are imported into the U.S. with a 2.5 percent tariff, while American-made autos shipped to Germany face duties as high as 10 percent.
The U.S. goal should not be to simply increase our tariffs, which will only invite higher tariffs on products we ship abroad. That could lead to the kind of spiraling trade war that hobbled the world economy during the Great Depression. Any of us who studied the onerous Smoot-Hawley tariffs of the 1930s will recall that the ensuing trade conflicts only made the Depression worse.
Instead of stumbling into a trade war, the U.S. and its trading partners should open a “trade peace” process that lowers high tariffs abroad and imposes real restrictions on below-cost dumping of foreign products here, including voluntary restraints on steel and aluminum shipped to the U.S. On trade, let’s make peace, not war.
Al D’Amato, a former U.S. senator from New York, is the founder of Park Strategies LLC, a public policy and business development firm. Comments about this column? ADAmato@liherald.com.