Trade Deficits: Made in America

By Utley, Jon Basil | The American Conservative, April 2011 | Go to article overview

Trade Deficits: Made in America


Utley, Jon Basil, The American Conservative


Several writers in these pages have urged restrictions on trade with China and other protectionist measures, claiming these would produce large numbers of American jobs.

Although they make compelling arguments, they ignore key reasons for job losses that are mostly of America's own making.

Below are seven factors to consider. The consequences of protectionism would be far more damaging to America than critics of free trade assume. Most of our trade deficits are the result of our own policies. Protectionism is a two-way street and would injure many American companies without bringing back large numbers of factory jobs--indeed, half of the profits for U.S. firms listed on the S&P 500 index are earned overseas.

American labor has always in the past competed effectively against low-wage foreign competition. Germany today has higher manufacturing wages than those in the United States, yet it has a very favorable trade balance. Obviously there must be other factors responsible for American job losses beside China's lower wages.

1.) America's trade deficit is primarily due to oil, which accounts for some 50 percent of imports. This imbalance could be curtailed by billions of barrels if Washington allowed new domestic drilling in Alaska and offshore in parts of the Atlantic and Pacific coasts. Such drilling would provide hundreds of thousands of solid, mostly blue-collar jobs--exactly the kind that have been lost in recent decades.

2.) Trade statistics are very misleading. Much manufacturing in China is done for American companies, which gain most of the profits. For example, the Apple iPhone adds $2 billion to the trade deficit with China, although it is entirely designed and owned by Americans and is made of parts imported from Europe and other Asian nations. China's actual input is $6.50 out of the $178 wholesale cost, according to a Wall Street Journal analysis, "Not Really Made in China." It explains that the actual trade deficit with China is about half of what the statistics show.

The same consideration applies to many other imports--sneakers, for example. A pair of Nike shoes may cost $3 to produce, which goes to China. The rest of the retail price is accounted for by advertising, shipping, design, raw materials, and profits, most of which revert to Americans.

China's imports of raw materials are bought from Latin America, but their value shows as part of our trade deficit with China. …

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