Peter Morici breaks down the major elements of the U.S. trade deficit, with a causal analysis illuminating solutions.

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The Falling Dollar and the Stubborn U.S. Trade Deficit
by Peter Morici


Since October 2006, the euro has risen about 13 percent against the dollar but don’t expect dramatic improvements in the U.S. trade deficit until China and other Asian exporters permit their currencies to rise significantly too. (read more).

Very scary.  Chemical companies should not make pharmaceuticals.  (Note my amazing grasp of the obvious).  But in China they do manufacture illegally, and export illegally.  At least 700 companies make human drugs, or components of the final drug, for export to the U.S.  The FDA has no idea, again, what is coming in. 

Several factories there sent representatives to [a Milan, Italy pharmaceutical trade show], including the Changzhou Kangrui Chemical Company. It makes pharmaceutical ingredients in an old converted steel plant. “I’m afraid it will leave you with a bad impression,” said Zhou Ladi, a sales representative, as she gave a tour. She said Kangrui Chemical hopes to move into a new plant by early 2009.

“As long as we don’t export products that are under patent in other countries, the government encourages us to export,” she said.

And this is comforting.

 some uncertified companies accused of selling counterfeit drugs are owned by the government itself. 

GM is a good old American car company.  We should be patriotic and buy their stuff. Right?

GM is putting up a major research center in China, as another major transfer of our R&D elsewhere.  It continues that company's practice of driving Michigan auto suppliers out of business by replacing them with foreign suppliers, even if the local products are the same price.  There is something very strong about the outsourcing mentality that causes an illogical inertia.

That's not to say that our companies should not invest overseas.  But if they build overseas to re-import to the U.S. that is a problem.  The currency manipulation and value added tax problems facilitate this.

• GM could, if it wanted to, drive major sensible change to U.S. trade policy.
• GM could, if it wanted to, push many politicians to rein in the currency manipulation problem.
• GM could, if it wanted to, be a major force in driving an audit of trade policy to correct the U.S. economic course before signing new agreements.

But... it outsources.  God Bless America.

How to you ferret out subsidies in China when the biggest companies are government owned?  Where does the government stop and the company begin?

The Chinese steel industry is in major growth mode.  That would be fine if it were because of that mythical beast, "comparative advantage."  But that mythical beast exists only in children's books, like the troll under the bridge in "Billy Goats Gruff."  Their steel industry grows from massive subsidies.

The European steel industry is looking for 25% to 40% duties on cold-rolled and galvanized steel to neutralize China's actions.

The free traders will shout something about "protectionism" and "trade war".  But what does the dispute have to do with free trade except to seek it?  And how is it a way when you merely neutralize the unfair conduct of the other, but not punish it?