As global trade grows, so will U.S. economy

Donald Lambro

2/12/2007 12:01:00 AM - Donald Lambro

WASHINGTON -- One of the big economic myths in this country is that the United States doesn't make much of anything anymore and has seen its exports dwindle overseas.

This is the story line being spread by left-wing politicians who ought to know better, labor-union bosses who have their protectionist agenda and economic nationalists on the right who want to raise tariffs (another term for government taxation) on just about everything we buy.

These people point to the continuing reduction in manufacturing jobs, a persistent trend over the past several decades, as proof positive that our manufacturing industry has declined as well. It is true there are fewer manufacturing jobs, but this is due to several strategic factors: outsourcing of service jobs to independent contractors and advancing technology that allows manufacturers to make products faster, better and more efficiently with fewer workers.

All of this is part and parcel of the increasing U.S. productivity from which our economy has benefited for many years -- trends that are not going to be reversed. If anything, they will accelerate as manufacturers seek new cost-saving innovations to find ways to reduce unit costs. That will mean lower prices for consumers and more competitive prices overseas in the global economy. As for those claims that U.S. manufacturing is in decline, export numbers tell a far different story. We are making more products and selling more of them abroad than at any time in our history. Consider these statistics from the Department of Commerce: U.S. exports grew by 13.1 percent in the 12-month period through November 2006, totaling $1.3 trillion. To put this number into sharper perspective, Germany's entire gross domestic product, the sum total of all its economy produces, was $2.79 trillion. India's GDP was $772 billion.

Our exports shot up to 11.2 percent of U.S. GDP in the third quarter alone, the highest level in dollar terms ever. "U.S. exports are booming," the Wall Street Journal reported.

But trade critics rarely mention these numbers, preferring to focus on imports -- especially from China -- and the trade deficit they say is destroying our economy. Don't believe it.

Yes, we buy a lot of imported goods and no doubt will buy more in the years to come as America's affluence rises, but this is a net positive for U.S. consumers and our economy overall. We haven't suffered from this trend; we've benefited from less expensive goods.

"For decades, the trade deficit has been a political and journalistic lightning rod, inspiring countless predictions of America's imminent economic collapse," said Bear Stearns chief economist David Malpass in a Wall Street Journal commentary. "The reality is different.

"Our imports grow with our economy and population while our exports grow with foreign economies, especially those of industrialized countries. Though wildly criticized as an imbalance, the trade deficit and related capital inflow reflect U.S. growth, not weakness -- they link the younger, faster-growing U.S. with aging, slower-growing economies abroad," he wrote.

Free-trade critics, beyond their gloom-and-doom rhetoric, never quite say how our country is being hurt by trade expansion. The more we grow, it seems, the more they say trade is undermining our economy.

Malpass, one of Wall Street's most astute economists, suggested we look at job growth as one measurement. "Since the 2001 recession, the U.S. economy has created 9.3 million new jobs, compared with 360,000 in Japan and 1.1 million in the euro zone, excluding Spain. This despite our trade deficits and their trade surpluses."

Significantly, like the United States, Spain, which created 3.6 million new jobs over this period, and Great Britain, which added 1.3 million jobs, all ran trade deficits. But job creation wasn't hurt and wages were rising solidly in all three countries.

"The economics is clear (for once) that a liberal trading environment allows more jobs with higher wages as people specialize," Malpass said.

Increasingly, as emerging economies like China continue to expand, so will our exports to the Chinese. China's imports are well known to any American shopper. But the growth of U.S. exports to them is less known.

They are now our fourth largest export market. U.S. exports to China shot up by nearly 33 percent through November, while imports rose by 18.2 percent over the same period.

But statistics like these are ignored by the trade critics who want to shut down free-trade agreements that lower or eliminate trade tariffs, despite the increased job-creating business that has resulted to our benefit.

Remember how fiercely these critics fought the Central American Free Trade Agreement with El Salvador, Guatemala, Honduras, Nicaragua, Costa Rica and the Dominican Republic?

Trade protectionists said these countries were too poor to buy any of our stuff. But last year, U.S. exports to these countries totaled $20.5 billion, an 18 percent hike over 2005.

The global economy is going to grow by leaps and bounds in the years to come and as it grows, so will the U.S. economy whose sales message to the world is: Buy as much as you want; we'll make more.