In thinking through all of the issues that plague our country and our economy, there is one issue that continues to trump them all: the trade deficit.
The trade deficit has existed since 1976. During the last decade, however, the United States has seen an escalation in the disparity between the value of goods imported and goods exported. The goods deficit alone has averaged more than $640 million each year, and we continue to go deeper into debt as a country every year.
Let’s use running a business as a simple comparison. Dollars coming in equals our revenue. Dollars going out equals our expenses. The net difference is our gain or loss. So when we think about the macroeconomics of our country and the trade deficit, it is similar to a business running at a loss – a very significant loss. Imagine your business running at a loss every year for three decades. Is the big picture of the issues surrounding our trade deficit getting clearer?
Some say that our dependence on foreign oil is the main reason we have a trade deficit. However, in 2009, oil only accounted for approximately 40 percent of the total deficit. In the grand scheme, just take a look at where everything we consume comes from. Even the basic items, such as a 69-cent paint tray liner at the local home improvement store, comes from Vietnam. Seriously, we can’t even produce that domestically?
So much of what our country’s consumption has come to is the low-cost disposability of our society. Some call it the Walmart effect: “Everything is affordable if it is cheap enough, and when it breaks, don’t fix it – just replace it.”
Most recognize that the U.S. economy is a big machine, of which 72 percent is driven by consumption. So if we’re consuming stuff that isn’t produced or at least assembled here, then how are we going to change the flow of the simple equation? Keep raising taxes? That would be like a money manager saying, “Hey, I don’t want to service more clients and work to grow my business, so I’ll just raise the advisory fees to those clients that I already have.” Is this not exactly the same thing as increased taxes?
So when will this change? When and how does the trade deficit reduce and maybe, just maybe, become a trade surplus like China’s? When we actually start producing U.S-made goods again. When we start being able to afford something produced in our country again. When Washington figures out the simple equation.
Imagine if our country was running with a $640 million surplus. Tax rates might just drop. Unemployment might just drop. Health care might be affordable and available for everyone. Isn’t that what we all want? Isn’t that what politicians say they are trying to fix? Isn’t that the lost American dream?
I say, start with the trade deficit.
Skip Motsenbocker is chief marketing officer of SignalPoint Asset Management in Springfield. He can be reached at smotsenbocker@signalpointinvest.com.
