Fallout: The Financial Crisis

Trade and production will lift economy

Marketplace Staff Jan 16, 2009
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Fallout: The Financial Crisis

Trade and production will lift economy

Marketplace Staff Jan 16, 2009
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Kai Ryssdal: Monthly trade figures came out earlier this week, trade deficit figures. For once in a very long while our appetite for imported stuff seems to have gone away. The November gap between what we bought overseas and what we sold there was the smallest it’s been since 2003. In and of itself that’s good. You never want to run big deficits. But it is just another indicator of how little American consumers are spending. President-elect Barack Obama is trying to change that with his big stimulus package. Commentator Clyde Prestowitz says if the new administration ignores those huge trade deficits, a stimulus might do more harm than good.


Clyde Prestowitz: For the last 40 years you could pretty much say that trade was a matter of “Asia makes and America takes.” American leaders saw consumption as the engine of economic growth and told the nation to go shopping. Eventually, we bought way more than we produced and rang up huge trade deficits that we had to finance by borrowing abroad.

Germany, Japan, China and other Asian countries had a different idea. They built factories that produced exports for sale to us. By selling more than they consumed, these countries racked up record growth rates, trade surpluses, and dollar reserves, which they lent back to us to finance our consumption.

For a while, it worked. The United States had a party while Asia got rich. But Americans borrowed heavily to keep the band playing. When banks stopped lending last year, consumers hit the wall and the U.S. economy went into reverse. So now, Obama wants stimulus to get us back to buying. Good idea. But if that only means more taking from Asia, it’ll just be deja vu all over again.

To work, the stimulus must get Americans to borrow less and produce more of what they consume. This means not just spending money, but insisting on competitive exchange rates and policies that promote investment in a U.S. manufacturing renaissance. And, if America imports less, Asia and Germany will need to buy more from themselves to maintain growth.

Sounds easy, but strong exporters don’t really know how to consume. Their systems are built to repress consumption and promote savings. To make the switch, they’ll need even bigger stimulus packages than ours. They’ll also need to do things like reduce consumption taxes, let people have bigger homes, and in the case of China, provide better public services.

So Obama will have to tell Germany, Japan, and China to reverse their economic miracles. That’s a hard sell. But if they don’t buy it, our stimulus will only crank up their exports and we’ll be back where we started.

So someone on the Obama team ought to start thinking right now about how to make that pitch.

Ryssdal: Clyde Prestowitz is president of the Economic Strategy Institute.

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