KAI RYSSDAL: It’s another record. But not necessarily the good kind. The Commerce Department told us this morning the trade deficit grew by 6.5 percent last year.
Here’s the record part: we bought $764 billion more stuff from overseas than we sold. By far the biggest chunk of that money, $233 billion to be exact, is our trade gap with China. Deficits with the E.U. and Japan are pretty fat, too.
Congressional Democrats sent a letter to the president today calling for tougher trade policies to bring down the trade imbalance. But commentator and economist Marcellus Andrews says the only people we should be tough on are ourselves.
MARCELLUS ANDREWS: Average Americans doesn’t see much of a problem when they buy cheap Chinese goods from Best Buy or Wal-Mart. How can buying cheap DVDs, TVs, CDs and other gadgets be a bad thing?
But the harsh fact of economic life is that because Americans keep buying more from China than we sell to China, our standard of living must go down.
Here’s how it’ll happen: there are 1.3 billion Chinese just as smart as we are. Their low wages are a road to riches for them, and a road to ruin for thousands of us.
As a result, Chinese banks are flooded with dollars. The Chinese are sitting on well over a trillion of them.
What can Chinese banks and businesses buy with dollars in China? Not much. But they can lend us money. Every time you use your credit card, think “dollars courtesy of China.”
Since Americans spend $1.01 for every dollar we earn, we have to borrow the difference from somewhere. Chinese banks have money to lend American banks, who in turn finance credit card purchases and mortgages and much else.
The Chinese will eventually stop lending us dollars they earn selling us more stuff than we sell them. It’ll happen pretty soon, too.
See, households are starting to max out on their credit cards. Mortgage defaults are up, and they’re likely to shoot up further now that the housing bubble has popped.
Chinese banks will start trading dollars for other currencies and start spending their dollars on other investments, like U.S. businesses and very valuable property. In other words, the Chinese will figure it’s better to end up owning an ever larger piece of America than to lend spendthrift Americans money.
I worry we’ll only wake up when our banker, China, cuts off our national credit card and thus slices our high living. Then, we’ll get bellicose and blame the Chinese for what we’ve wrought.
And we’ll be flat-out wrong.
RYSSDAL: Economist Marcellus Andrews lives in New York City.
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