Which number is greater?
(a) $2.7 billion
(b) $100.8 billion

  On Wednesday, Commerce Secretary Carlos Gutierrez trumpeted the good news that the U.S. has achieved a $2.7 billion surplus in manufactured goods with our 14 Free Trade Agreement (FTA) partners during the first five months of 2008.  Gutierrez stated, “Our trade balance with FTA partners has swung from a deficit to a surplus proving that open markets are a key ingredient to the competitiveness of U.S. manufacturing and the health of the U.S. economy.”

Opening up markets or, conversely, reducing barriers to U.S. exports, can certainly be helpful for U.S. manufacturing.  Nothing demonstrates the need to reduce foreign barriers more clearly than the $100.8 billion trade deficit in manufactured goods that the U.S. has racked up with China in the same five months of 2008, according to International Trade Commission (ITC) data.  Because China employs illegal currency manipulation as well as subsidies and dumping, there is no happy news—no improvement in the overall trade balance, no increased opportunities for U.S. manufacturers.

Regarding the 14 FTA countries, a better question is whether or not Free Trade Agreements actually helped the U.S. to achieve balanced trade in manufactured goods.  Possibly this recent export success should be attributed more to a significant decline in the dollar’s value relative to virtually all of their currencies.  And, truthfully, countries like Bahrain and Morocco, for example, possess little in the way of a manufacturing base.  It’s not difficult for the much larger United States to outpace them in manufacturing.  

There’s a twist here, too: the U.S. trade balance typically improves during a time of recession.  That’s because, with less money in the average worker’s pocket, consumption of imports tends to fall.  Thus, a dip in imports is yet another fragmented indicator of recession, and so, rather than being a sign of strength, the improvement in our trade balance signals possible, broader economic problems.

The main point is that when you stand a $2.7 billion surplus (spread across 14 countries) next to a mammoth $100.8 billion shortfall, you see a rather big net loss.  Specifically, you see a loss of American manufacturing jobs, a loss of productive capacity, and a potentially diminishing self-sufficiency in national security.

Thus, ManufactureThis, while not wanting to rain on Secretary Gutierrez’s parade, would ask him to focus on the bigger numbers and not nip at the margins.  But that would require getting tough on China’s repeated violations of world trade law, including the aforementioned dumping, subsidies, and illegal currency manipulation—something Gutierrez and the administration have been oh-so-reluctant to do.

Secretary Gutierrez might want to take another look at his interpretation of the facts, or cast a longer glance at China.

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This entry was posted on Friday, July 25th, 2008 at 7:56 pm and is filed under Manufacturing in the U.S., Holding China Accountable. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.