Future Security: A Big Problem, Barely Noticed

Issue Brief

Every summer I take my wife and the twins to visit Mom in Massachusetts. She lives there because she retired to the place her immigrant parents first came a century ago, to work in what was then the biggest rope factory in the world. The factory is gone, and the site is now occupied by a WalMart. Mom’s house isn’t very well stocked for a family with young kids — she’s 86 years old — so I make lots of trips to that WalMart. One purchase I made last summer was two handheld weights, solid chunks of cast iron that weigh 35 pounds each. I noticed as I was buying them that they were from China.

I thought about those weights when I heard Tuesday morning’s report that the U.S. trade deficit hit a staggering $60 billion in November — far above what economists were predicting, but all too consistent with the trends in U.S. trade performance over the last several years. Aside from a brief surge in the Reagan years, the annual trade deficit never got above $100 billion until the Clinton Administration, but it’s been deteriorating ever since. It passed $400 billion in 2002 (4% of GDP) and was nearly $500 billion in 2003 (5% of GDP). The revised trade figures for November put the deficit at $561 billion for the first 11 months of last year, meaning the full-year total will exceed $600 billion (about 6% of GDP). In other words, the U.S. trade deficit is now roughly as big as the whole South Korean economy.

The Bush Administration has all sorts of excuses for why U.S. trade performance has deteriorated so badly. An overpriced dollar. High oil prices. Holiday inventory accumulation. But the dollar has now lost half of its value against the euro, oil prices are moderating, and the holidays are over. As each of these excuses wears out, I keep coming back to those weights I bought at WalMart. Apparently, WalMart finds it cheaper to cast iron in China and ship it halfway around the world to Massachusetts, rather than cast it in Pennsylvania or Ohio and ship it a few hundred miles east. What does that tell you about American economic competitiveness?

It tells you that the economic foundations of U.S. power are eroding. If you don’t believe me, take a walk through Best Buy and see if you can find anything made in America besides hip-hop anthologies in the CD section. Americans want to believe their society is on the cutting edge of the information age, but all the infotech they buy seems to come from somewhere else. And every time the supply-siders in the White House secure another tax cut to stimulate the economy, consumers — whose household savings rate now averages less than 1% of income — rush out and buy a flatscreen television or Gamecube from one of those places. No doubt about it, the tax cuts are stimulating growth — in China.

So what’s my point? My point is that America has worse challenges to worry about than a handful of nuts scattered across Arabia. We may not be faring well against the Iraqi insurgency, but you could have predicted that from Vietnam and Somalia. It wouldn’t matter much if Iraq wasn’t sitting on the world’s second largest oil reserves. But America’s security and power ultimately rest upon the strength of its economy, and contrary to what the pundits tell you, the U.S. economy is not faring well against most competitors. When the world’s biggest retailer has to ship cast iron from China to America to get good returns, something has definitely gone wrong with U.S. economic performance.