We all hear a lot of rumblings about our nation痴 trade deficit, but rarely do we hear any politicians talk about what caused the massive imbalance. What I am going to attempt to do here is give you the reason why our balance of trade is out of control.
The ramification of this problem is my #1 reason for being cautious on the US stock market. While the focus of the stock market and the economy seems to be hinged on the direction of interest rates, I致e been arguing that higher interest rates do not tell the entire story. The bigger picture, in my opinion, is lower incomes, and the loss of jobs.
So, what caused the massive trade deficit? Back in 1993, congress voted 234-200 to approve the North American Free Trade Agreement (NAFTA). Prior to 1993, George H.W. Bush used the term 哲ew World Order�, and of course, at the time, I had no idea what that meant. Well, by now, we should all know what this means. In a nutshell, it was a term for globalism, and free trade.
When power brokers (whoever they are) realized there was no way a republican President could convince a democratically controlled congress to pass NAFTA, they chose a little known democrat from Arkansas to get the job done. Early in his administration, Bill Clinton convinced the democratic majority in congress to pass NAFTA. This was the beginning of our soaring trade deficit.
釘UY AMERICAN� & WALMART
Do you remember the days when the founder of Wal-Mart, Sam Walton began the famous Wal-Mart 釘uy American� slogan in 1985? These famous words worked for a while, and Wal-Mart stock was one of the best investments around. When NAFTA was passed, the company's 釘uy American� strategy began to hurt the stocks performance, because American made goods were more expensive, and hurt the company痴 margins. The stock went into a deep slumber, and traded in a range of $22-$30 from 1993 to 1997.
Wal-Mart was slow to change, but eventually the 釘uy American� slogan was trashed, and the company began selling goods made from cheap labor markets. From late 1997 to April of 1999 Wal-Mart stock rose from $30.25 to $106.81, and split 2-1.
Since the passage of NAFTA, the country痴 trade deficit began to climb, and US jobs were being shipped overseas.
In his 1992 presidential bid, Ross Perot began using the term, 敵iant Sucking Sound� and politicians as well as the media portrayed him as a loony billionaire without a clue. Given our current trade deficit, and lost jobs, we need to credit the guy for his foresight.
Freelance writer, Mark Anderson wrote an article entitled "NAFTA: A Bag of Unfulfilled Promises 10 Years Later" for the American Free Press. In the article he quotes retired GM senior executive Gus Stelzer. Here are some of the quotes from Stelzer in Anderson痴 article.
From a 1998 speech:
"NAFTA has already caused $160 billion in trade deficits, the loss of $650 billion in national income, $300 billion in lost tax revenues, and 2 million lost jobs. I have in my possession a labor Department report as of Dec. 31, 1996, listing the names and locations of 1,586 factories that closed in the first 3 years of NAFTA. Since then, that number has climbed beyond 2,000, most having moved to Mexico".
** Keep in mind Stelzer made these comments in 1998. NAFTA was establishing free trade (opening borders) with Mexico and Canada. Since then, many more US jobs have been shipped off to cheaper labor markets in Asia.
Anderson went on to say,
釘ut NAFTA, negotiated by the elder President Bush when he enjoyed higher ratings due to the Gulf War I, and enacted in the early Clinton Administration, soon wiped away this balance of trade. The combined trade deficit with Canada and Mexico, sine NAFTA was implemented, mushroomed into a whopping $700 billion from 1994-2004. In 2004 alone, this trade deficit was $111 billion-about $48 billion with Mexico and the rest with Canada�.
Finally, and you池e beginning to get the picture now, here痴 what Anderson said about some of the fine print in the NAFTA document: 哲AFTA had a rider attached to the implementing that established a $4 billion 徒itty� for job-loss relief, which included retraining and re-education for American workers, a rather odd thing for such a utopian sounding trade pact�.
** These quotes came from an article written by Mark Anderson for the American Free Press. I just gave you a few bits and pieces from Mark痴 article, if you wish to contact him, his e-mail is truthorelse@msn.com.
Comments (2)
It didn't hurt that all the emerging markets currencies and stock markets crashed in 1997 except for Mexico, and Wal-Mart could then buy things from the far east for 5 cents on the dollar from the year earlier.
Posted by alan | December 1, 2005 12:23 PM
Posted on December 1, 2005 12:23
You did not go far enough back in history.
The stagflation of the late 1970's was cured by Volker of the Federal Reserve Board by jacking up interest rates to an astronomical level, which, of course, produced a recession. Reagan's answer to that reality was to forget all about his promise to decrease the size of government. Instead he increased spending for the military and reduced taxes, beginning our long slide into deficit spending. By late 1982, the economy came roaring out of the recession, largely because of reduced interest rates. The growing economy raised the value of the dollar and increased dramatically our trade deficit. In by 1985, the public and the Congress were in open rebellion. A law to raise import tariffs barely failed to pass the Congress. James Baker, Sec. of State, arranged an "accord" with our major trading partners to intervene in the currency markets, so as to reduce the value of the dollar. The dollar began to decline rapidly and continued to decline for the next 3 years. In 1997, our trade deficit began to decline and continued for the next 4 years, reaching near zero in 1991.
What I am saying is that the strong growth potential of the U. S. and our lack of restraint on imports, combined, as early as the beginnings of the 1980's, to create a trade deficit, so long as the Federal government ignored the issue.
NAFTA was merely the implementation of the long held idea, among U. S. leadership, that the U. S. policy is to increase world trade and not to worry about the trade deficit.
Eliminate all trade with Mexico and Cananda and you would still have a overwhelming trade deficit. The problem is bigger than NAFTA.
The only way to recover our footing is to declare that the U. S. policy is to gradually reduce our trade deficit down to near zero. Equal trade should be the goal of all countries.
The path to equal trade is a gradually increasing TARIFF on ALL goods imported into the United States from 5 countries (China, Japan, Germany, Canada and Mexico). Those 5 countries are responsbile for 60% of our trade deficit.
That is a tariff with a responsible goal - to create an international trading system based on equal trade between all nations.
ReformerRay
Posted by W. R. Mills | December 2, 2005 2:57 PM
Posted on December 2, 2005 14:57