Signal Point™ Asset Management Advisors

Recovery Starts with Trade Deficit

Published Mar 09, 2010 by Skip Motsenbocker

In thinking through all of the issues that plague our country and economy in particular, there is one issue that continues to trump them all: the trade deficit. It has existed for more than three decades, since 1976. The United States has seen an escalation of disparity between the goods we import versus export over the last decade. The goods deficit alone has averaged over $640 million every single year, and we continue to go deeper into debt as a country every year.

Let’s use the running of a business as a simple comparison. Dollars coming in equals our revenue. Dollars going out equals our expenses. The net difference is our gain or loss. So when we think about the macro economics of our country and the trade deficit, it is similar to a business running at a loss—a very significant loss. Imagine a business, your business, running at a loss every single year. Is the big picture of the issues surrounding our trade deficit getting clearer?

Some say that our dependence on foreign oil is the main reason we have a trade deficit. However, if we look at the 2009 figures, oil only accounts for approximately 40% of the total deficit. In the grand scheme, just take a look at where everything we consume comes from. Even the basic items, like a 69-cent paint tray liner at the local home improvement store, come from Vietnam. Seriously, we can’t even produce that domestically? So much of what our country’s consumption has come to is the low cost disposability of our society. Some call it the Wal-Mart effect. You know, everything is affordable if it is cheap enough, and when it breaks, don’t fix it, just replace it.

Most recognize that the US economy is a big machine of which 72% is driven by consumption. So, if we’re consuming “stuff” that isn’t produced or at least assembled here, then how are going to change the flow of the simple equation? Keep raising taxes? That would be like a money manager saying, “Hey, I don’t want to service more clients and work to grow my business, so I’ll just raise the advisory fees to those clients that I already have.” Is this not exactly the same thing as increased taxes?

So when will this change? When and how does the trade deficit reduce and maybe, just maybe, become a trade surplus like China? When we actually start producing U.S-made goods again. When we start being able to afford something produced in our country again. When Washington figures out the simple equation.

Imagine if our country was running with a $640-million-dollar surplus. Tax rates might just drop. Unemployment might just drop. Healthcare might be affordable and available for everyone. Isn’t that what we all want? Is that what Washington says they are trying to fix? Isn’t that the lost American dream? I say, start with the trade deficit.

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