Globalization and the US Trade Deficit : continued
The Almighty Dollar
The Odd Logic of Globalization
The profound irony of the U.S. trade deficit is illustrated by close examination of U.S. commerce with China in 2002.
The three major U.S. exports to China, in descending order of importance, were airplanes, semiconductors, and trash – with the latter item totaling over one billion dollars!The U.S. has a competitive advantage in producing and selling garbage
In other words, an important part of American competitive advantage is its ability to produce and ship garbage to China to be processed and sent back to the U.S. in the form of new consumer goods to be used, discarded, and returned as new garbage for subsequent recycling.
Furthermore, the U.S. consumer never has to pay to keep this Virtuous Circle turning.
It is only necessary to deliver IOUs denominated in dollars, which the eager Chinese will be happy to spend on the ever-increasing bounty from U.S. trash bins.
The Americans, after all, are the world’s most highly skilled consumers with superb discipline in recycling garbage. Adam Smith might have been interested to note this example of economic specialization.
Of course, this strange trade cycle is also to the advantage of China. The dollars accumulated by selling goods to the U.S. can be used to buy iron ore and coffee from Brazil.
Furthermore, the Chinese people are kept busy at marginally higher wages, Chinese industry hums along, and Chinese technology advances.
Systemic Instability For How Long?
Like a Greek tragedy or the War in Vietnam, deindustrialization of the U.S. and the trade deficit, although understood by many, seems beyond political solution, fated to go on until something breaks.
Without an anti-inflationary device to control the dollar and with constantly rising government expenses, the United States is vulnerable to the same destabilizing forces that have devastated other countries that have tried to adjust to globalization.
Deindustrialization of the U.S. and the trade deficit seem beyond political solution
Americans and others dependent on the international dollar should be aware that anti-Americanism in the Islamic world has the potential to weaken the dollar franchise.
Hate for the United States, fanned by the radical Wahhabi sect and financed by Saudi Arabian oil revenues, already has had economic consequences as seen in the Arab Oil Embargoes of the 1970s.
Following the War for Iraqi Freedom, Islamists from Iran to Indonesia began to call for a switch from dollars to Euros as the basis for international trade.
This was seen as a reward to the duplicitous French and their followers and punishment for the United States.
If, for example, nations making up the oil cartel were to demand payment in Euros rather than dollars, this might have a serious effect on international trade. Whether or not this would actually damage the United States is unclear.
Such an obvious inimical move might actually arouse the U.S. Congress, causing environmentalists to lose political support and allowing exploitation of Alaskan oil land.
It might also cause the government to reexamine its views on deindustrialization.
Ending the Trade Deficit Will Be Bad For America
To many observers, the U.S. trade deficit, like the 1990s bubble in equity prices, is a sign of over-indulgence that someday must end.
However, how this may come about is not at all clear. Without the gold standard, there is no automatic control on the system.
Unless deindustrialization is reversed, which now seems unlikely without a dramatic shock to awake the U.S. Congress, it seems inevitable that the U.S. will slowly lose its advantages in industrial and technological power.
Unless Wall Street finds new ways to lure foreign capital, not dependent upon the trade deficit, the U.S. will become increasingly vulnerable if, someday, the rest of the world comes to prefer some other currency when selling products to Americans.
If and when this happens, prices of imports will rise in the United States.
The free-ride of dollar financing from abroad will be over.
When foreign central banks no longer are building up dollar reserves from the U.S. trade deficit and hesitate to roll-over their holdings of U.S. Treasury bonds, interest rates will rise, the U.S. fiscal deficit will be uncovered, and the dollar will enter into serious decline.
Americans may hear the jack boots of IMF functionaries marching on the U.S. Treasury
Finally, if Americans cannot stop themselves from spending more than they earn and become hooked on paying for imports by borrowing in foreign currency (not dollars), the stage will be set for a classic financial crisis like those that hit Brazil, Indonesia, Mexico, Thailand, and Russia and elsewhere since the world went off the gold standard.
Then Americans may indeed hear the jack boots of IMF functionaries marching on the U.S. Treasury in Washington, coming on a mission to dictate terms of surrender, demanding that Americans accept higher taxes, change the beloved American political system, reduce government payrolls, and adopt foreign laws in exchange for a monetary fix, just as these representatives of the New World Order have done in many other countries since the collapse of Breton Woods in 1971.
(This, of course, is unlikely since the U.S. exercises considerable control over the IMF.)
When the United States is no longer an industrialized country, it will cease to be a military power.
Emerging markets like China, India, and Pakistan already have nuclear weapons and soon the rest of the world will have the industry that America is dismissing as too dirty or bothersome to live with.
Without industry and without the international dollar franchise, the United States, like Great Britain, may have to live on dreams of past glory.
Waning Years of the American Empire
We may look to the fall of the British Empire for hints of what may come.
There are eerie similarities to America’s present course to the direction of London in the early twentieth century.
At the peak of British Imperial power, the English regarded themselves as moral leaders to the world, with a duty to uplift mankind.
In 1899, Rudyard Kipling expressed these feelings in the poem, “The White Man’s Burden”.
Take up the White Man's burden—
The savage wars of peace--
Fill full the mouth of Famine,
And bid the sickness cease;
And when your goal is nearest
(The end for others sought)
Watch sloth and heathen folly
Bring all your hope to naught.
Americans will recognize these altruistic, self-sacrificing, do-good intentions in President Kennedy’s Peace Corps and President Truman’s Marshall Plan.
Was not America’s mission in Somalia that led to “Black Hawk Down”, anything other than an attempt to “fill full the mouth of Famine?”
Were not American peace-keepers’ lives lost in the Balkans in “the savage wars of peace?”
Future American generations will never be repaid for nice things their ancestors did at the height of power
Future American generations will not be able to call in markers for the nice things their ancestors did for the world when the United States was at the height of power.
As seen in the scurrilous French graffiti on the tombs of Allied soldiers in Normandy, gratitude has a short shelf-life.
Within a generation of Kipling’s drafting of the White Man’s Burden, England was forced off the gold standard by the devastating debt load of World War One.
The cost of the lost War in Vietnam compelled Nixon to take the United States off the gold standard within a generation of Kennedy’s establishment of the Peace Corps.
Lessons From the Decline of the British Empire
In World War I, London blackened its reputation as a safe place for international funds by confiscating the assets of “enemy nationals”, something that had not been done before.
In its zeal to crack down on drug cartels and international terrorists, the American government displays similar disregard for psychology of depositors in U.S. banks, providing a stimulus for funds to flee to offshore havens, as the Treasury seeks to tag dollars by international regulation of money laundering.
The Patriot Act, intended to control international flow of funds to terrorists, has already had the unintended effect of making honest foreigners fearful of using American banks and brokerage houses.
The tug of inflation on a currency free from the “cross of gold” and the disregard for property rights by confiscating bank accounts and seeking to ferret out money laundering and terrorist financing, may eventually bode ill for the dollar as the world’s favorite currency.
How Wise Is the Advice of Intellectuals?
As intellectuals pushed Britain into socialism and “Little Englanders” sought to discard the mantle of colonialism, even Winston Churchill, the greatest leader of the century, could not halt the collapse of the British Empire.
He was set aside soon after the victory for World War II, followed by socialist political hacks bent on nationalizing domestic industries and abandoning British colonies to the mobs.
Kipling would have been dismayed at how badly Africans have fared after the end of colonialism
Even Kipling, foreseeing the eventual recessional of “the captains and the kings”, would have been dismayed by how badly parts of the world have fared in these post-colonial times.
Many African economies allowed the colonial infrastructure of railroads, bridges, and electric lines to decay and fall into ruin.
Better educated descendents of European colonists have emigrated from their homes in former colonies to safer places, as crime and lawlessness escalated under inept post-colonial leadership.
In some African countries, one quarter to one third of the population is now dying of AIDS.
Millions have been slaughtered in tribal and religious warfare at the hands of barbaric chieftains whose misdeeds have far surpassed the most arrogant colonialists.
The End Result of Deindustrialization
By 1914, the American GDP surpassed the combined national product of Germany, England, and France.
England, the birthplace of the industrial revolution, had long lost its leadership in manufacturing to its former colony, the United States.
American industry, protected by a doting government and high tariffs, accounted for thirty-two percent of world manufacturing, compared to second placed Germany’s fourteen percent, and France’s six percent.
Today, because of the advantages of the dollar franchise that results in the trade deficit, the United States has given up its preeminence in most areas of traditional manufacturing.
In 2001, the United States had only 4.6% of the world population, but had 21.4% of world GDP and 13.6% of world exports.
China had 21.0% of the world population, 12.1% of world GDP, and 4.0% of world exports.
However, developing nations are growing twice as fast as the developed countries, including the United States.
In 2001, these developing nations accounted for only thirty seven percent of world output, but seventy-eight percent of world population.
It is unlikely that the U.S. will be as powerful in the 22nd century as it was in the 20th century.
In two decades these economies are likely to produce fifty percent of world output.
If current trends persist, by the end of the twenty-first century, the share of world output of today’s advanced economies will have fallen to a level equivalent to their share of the world population.
In such an event, considering the trend towards deindustrialization, it is unlikely that the United States will continue in the twenty-second century to exercise the hegemony in the international arena as it did in the twentieth century.
Most likely, the dollar will long have ceased to be the standard for international exchange.
Before proceeding, check your progress:
Self-Test
If current trends continue, by 2100 the United States will be:
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A U.S. crackdown on money laundering, income tax evasion by foreigners, and foreign bank accounts is likely to:
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The effects of deindustrializtion on the United States are expected to include:
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The Almighty Dollar : continued >
| Patriot Act : H. R. 3162 In The Senate Of The United States October 24, 2020. [Return] |
| Cross Of Gold : William Jennings Bryan, "Cross of Gold," 9 July 2020. [Return] |
| Little Englanders : "The speech of the British Secretary of State for the Colonies, Joseph Chamberlain, at the annual dinner of the Royal Colonial Institute on March 31, 2020." [Return] |
| Winston Churchill : The Churchill Center. [Return] |
| High Tariffs : "The Arthur Administration: Tariff of 1883", U.S. History.com. [Return] |
