Where was that made? Wait, don't tell me…
By Audrey Ward
At this very moment, on the surface of my desk and hanging from my desk chair, there are 6 items with a "MADE IN CHINA" imprint or label, one item with a "Made in Canada" imprint, one with a "Made in Malaysia" label, and one with a "Printed in Korea" notification. Oh, yes, and on the back of the computer on which I am typing this essay, I am notified that it was "Assembled in China." Among all of the objects on my desk, precisely one has a label mentioning the United States of America.
According to the US Census Bureau, in August 2010, the US had a trading surplus in the category of services to the tune of $12.6 billion, but a trading deficit in goods to the amount of $59.0 billion. This yielded a net trading deficit total of $46.3 billion. In light of mounting government debt and the fragility of the current economy, this trade deficit is not just an irritating mosquito to the health of the American economy. It is more of a hungry vampire bat. A chronic trade deficit means that Americans lose valuable manufacturing jobs. In the long run, if a trade deficit continues, the dollar's value will crash, and American living standards will decrease dramatically. How can we fix this major problem? A solution would involve decreasing imports by increasing dependence on domestically produced goods, increasing exports by focusing on our advantages in the world market, and encouraging American citizens to greatly increase their savings. However, in order to do so, the government and the American public would have to make some difficult decisions. Ultimately, a good solution for eliminating the trade deficit would also cut the government budget deficit.
One major problem with reducing imports is simply that foreign products are cheap and easy to purchase. China, America's largest creditor, has maintained a currency of low value so that their products remain highly competitive on the global market. Glance at the items in your house, and most likely many of them will have a discreet cloth label or a raised imprint on the plastic that says "MADE IN CHINA." As illustrated by the pile of objects on my desk, products manufactured abroad have infiltrated our lives deeply. On the other hand, American products are more expensive to manufacture and to sell—thus, retailers turn to non-American suppliers for the parts they need.
How can we change this situation so that the benefits of domestically produced products outweigh their costs? We should remember the economic principle of substitutes: if foreign made goods become more expensive, then more people will want to buy their American-made substitutes instead. We cannot force China or any other foreign nation to increase their prices, but the government can impose some tariffs on imports from other countries to make domestically produced goods more appealing. There is the possibility of an unintended consequence here: in retaliation, other nations may begin to impose tariffs on American exports, which would be counter-productive. Thus, tariffs of any amount would have to be delicately chosen so as not to limit America's export potential. Closing off the American economy to foreign trade would amount to protectionism, which is a bad policy in the long run—the international market becomes frozen and America will not be able to benefit from the extra boost to our economy that can come from foreign trade.
This brings us to our next question: how can we increase exports in order to help balance our trade with other countries? According to the law of comparative advantage, we should focus on that in which we have the greatest advantage or least disadvantage. According to the US Census Bureau, we actually had a surplus in the trade of services. In my opinion, we should follow up on this advantage. America should definitely strive to offer more, better and cheaper services for both domestic use and exportation. This could aid in balancing our terrible trade deficit.
Surprisingly, there is one aspect of trade relations in which America is currently doing quite well. When citizens do not save enough, they invite foreign savings into the American economy because, otherwise, America will not have enough capital for future economic growth. The only way to stem the flood of foreign investors is to encourage American savings in addition to increasing exports and decreasing imports. Because of the recession, Americans actually have begun to save. However, the government, in an effort to stimulate immediate savings, has plans to inflate the US dollar. This kind of stimulus should be avoided, because any short-term benefits of inflation pale in comparison to the long-term risks. Inflation discourages citizens from holding onto money because they know it depreciates in real value every day. If Americans stop saving, it may help the economy in the short-term, but in the long-term this will be a detriment to our trade deficit and the economy in general.
The final solution to eradicating a trade deficit sounds simple, but is in reality a sticky subject. In order to maintain a healthy trade relationship with foreign countries, the American economy as a whole must be at its healthiest. One of the largest enemies of future economic growth and health is the enormous government budget deficit that has started to soar to astronomical heights. Greater government consumption means higher taxes (a disincentive for savings). Although it may be politically unpopular, the government cannot continue with quasi-socialistic programs, especially universal health care, and at the same time maintain America's high economic efficiency. Ultimately, the government must resolve to stop running deficits. If the government is able to cut expenses, it will contribute to the health of the whole economy. Overall economic health goes hand in hand with a reduces or even eliminated trade deficit.
The trade deficit is a gargantuan problem as large as the pile of imported products in my house. Trade with other nations is good and can be beneficial to all involved. However, deficits are never helpful in the long run. Even if it means tightening our collective belt (government budget included), Americans should be willing to support and put their efforts into eliminating America's foreign trade deficit…and if we are successful, that collective belt will no longer have a "MADE IN CHINA" label on the back!
Audrey Ward is a high school AP student. © 2010 Audrey Ward