U.S. Trade Deficit Worst Ever—Here’s Why We Should Care

by Tula Connell, Feb 13, 2007

Today, the Commerce Department reported the U.S. trade deficit set a fifth consecutive record for the worst-ever in U.S. history.

…the gap between what America sells abroad and what it imports rose to a record $763.6 billion last year, a 6.5 percent increase from the previous record of $716.7 billion set in 2005. For December, the deficit rose a bigger-than-expected 5.3 percent to $61.2 billion.

The trade deficit in 2006 reflects a huge jump in America’s foreign oil bill—and more important, an all-time high for the trade gap with China.

The new trade report showed that the deficit with China shot up 15.4 percent last year to total $232.5 billion, the largest imbalance ever recorded with any country. China surpassed Japan as the country with the largest trade gap with the United States in 2000 and has held the top spot since that time.

That trade gap with China means fewer jobs here. An analysis by the AFL-CIO last year found:

Extended unemployment and income decline characterize displaced U.S. workers in import-intensive industries: twenty-five percent remained unemployed six months after losing their jobs, two-thirds earn less on their new job, one-quarter suffer wage losses of more than 30 percent. Manufacturing workers with long tenure suffer particularly high wage losses.

But the trade deficit with China doesn’t just affect workers in the manufacturing industry.

Studies confirm ongoing job loss to China: Using the International Trade Commission model the AFL-CIO calculated that up to 973,000 manufacturing jobs and 1,235,000 total jobs are displaced by China’s repression of labor rights; the Economic Policy Institute estimates 410,000 manufacturing jobs were lost to China between 2002 and 2004; US-China Economic and Security Review Commission (USCC) studies conclude that 70,000-100,000 jobs are moved each year from the U.S. to China, and those numbers accelerated after 2001.

Recent reports show exports of U.S. manufactured products have grown rapidly since 2002, but the Economic Policy Institute (EPI) has found “that good news gives a false impression of our overall trade health. Rapid import growth and trade deficits are outstripping those gains.” As AFL-CIO Secretary-Treasurer Richard Trumka notes:

The imbalance between our imports and our exports is so enormous now that our exports would need to grow at least 53 percent faster than our imports just to keep the trade deficit from growing. 

EPI senior economist Robert Scott shows how in eight of the top 10 exporting manufacturing industries, including computer equipment and motor vehicle parts, trade balances have declined, while it is projected the United States will run outright trade deficits in seven of these industries in 2006. In fact, EPI found that even by January, the overall U.S. jobs recovery still remains weak in historical terms, with jobs growing at half the rate of the 1990’s recovery.

So what’s the response of the Bush administration?

• Seeks to cut some $77 million in Trade Adjustment Assistance, which provides income support and training for workers who lose their jobs due to trade. But the cuts follow Bush’s effort to extend his Fast Track trade authority to win the kind of trade agreements that have already cost millions of U.S. workers their jobs.
• Push for renewal of Fast Track trade promotion authority. Fast Track, which expires June 30, enables the president to negotiate trade deals but prevents Congress from improving or rejecting harmful provisions by allowing only “yes” or “no” votes on such trade packages. Fast Track would enable the Bush administration to pass more bad trade deals, like the Central American Free Trade Agreement (CAFTA), that are skewed in favor of the interests of Big Business, not workers.
• Send U.S. Treasury Secretary Henry Paulson on another in a series of failed missions to urge China to reverse the devaluation of its currency. An AFL-CIO report shows China’s fixed currency rate artificially lowers the price of its goods by 40 percent and subsidizes exports, putting U.S. companies and workers at a disadvantage. The lack of currency flexibility has been a major factor in U.S. job losses and a trade deficit with China that hit $233 billion last year. Paulson has been to China three times since becoming treasury secretary—and all three times he’s returned empty-handed, with no change in China’s currency valuation.

So, trade deficit numbers may not be sexy. But losing jobs from the United States is a lot less so.

Writing recently in a USA Today op-ed, AFL-CIO President John Sweeney puts it bluntly:

Without dramatic changes in trade policy, we will continue to hemorrhage good jobs, while corporations take advantage of workers whose basic human rights are violated daily.