[Peace-discuss] Threat to US economy?

[C. G. Estabrook]

[Some people think that the world position of the US economy is precarious
enough that further US imperial adventures may be ruled out. Here's a
suggestion that that view is, so to speak, optimistic.  --CGE]

	http://www.money.cnn.com
	CNNMoney.com
	April 11, 2005 Monday 1:59 PM EST
	Trade gap: made in the USA
	By Chris Isidore, CNN/Money senior writer

U.S. companies looking for the source of much of the nation's trade gap
need only to look in the mirror.

A study by the McKinsey Global Institute, a think tank arm of the business
consultant firm McKinsey & Co., finds that about one-third of the nation's
current account deficit would disappear if we eliminate the trade with the
foreign operations of U.S. companies, according to the group. The current
account deficit is a broad measure of trade and capital flows between
nations.

"A large and growing share of the deficit simply reflects the
international reach -- and success -- of the strongest US companies," said
the recently published study. "An automaker importing cars assembled in
Mexico, for example, or a bank using call centers in India ...may add to
the nation's trade imbalance, but they also create significant value for
U.S. customers, companies, and shareholders."

The trade deficit will get a new attention Tuesday when the Commerce
Department releases its monthly trade report. Economists surveyed by both
Briefing.com and Reuters have a consensus forecast of a $59.0 billion
trade gap for February, up from $58.3 billion in January. But one third of
the 21 economists surveyed by Reuters expect the gap to top the $59.4
billion figure from November which stands as a record.

The McKinsey study argues that trade gap is overstated, and that the
government should change the way it measures trade, taking an
ownership-based view of trade and categorizing companies by where they are
owned rather than by where their goods are produced. It said that would
help the debate on trade be more constructive.

"Today's debate over the U.S. current-account deficit misses the mark,"
said the study. "Focusing on (U.S. companies' foreign operations')
activities is unhelpful and distracts attention from fiscal
irresponsibility in Washington--which poses a far bigger threat to the
future economic health of the United States."

But other trade experts argue that where the goods or services are
produced does matter for the nation's economic health, and the well-being
of its citizens.

"If an activity moves abroad and becomes an import, all that labor is
lost," argues University of Maryland Professor Peter Morici, one of those
forecasting a record trade deficit report Tuesday. "It really doesn't
matter very much who owns the plant that makes the imports."

He argues the shift of work to overseas operations weakens the U.S. labor
market, depressing earnings, and discouraging those with skills in short
supply in global economy from coming here to produce more wealth.

"It doesn't matter who owns the assets. You can get capital to build a
plant anywhere. What matters is where the plant is," said Morici.

Jay Bryson, global economist for Wachovia Securities, agrees with the
McKinsey study that the U.S. economy is better off in the long run due to
investment in overseas operations by U.S. companies.

"It's good for efficiency gains in the economy," he said.

But he disagrees that the government reports are looking at trade from the
wrong perspective. He said where the goods or services are produced is
still the most important way to look at trade for the purpose of
estimating what it means for the nations' economic growth, as well as the
value of its currency. That's why gross domestic product, which measures
the value of all goods and services produced in the United States, is the
broad reading of the nation's economic activity, not gross national
product, which measures the activity of U.S.-owned operations. GNP is
still measured but now virtually ignored by economists.

"To extent that we are buying things from abroad that we used to buy here,
income isn't going to be as great here," he said. "That trade gap needs to
be financed and that financing needs to come from abroad."

Ashraf Laidi, the chief currency analyst for MG Financial Group, also
agrees that the McKinsey study highlights something important that is
often lost in the overall trade figures. But he said even looking at trade
from the perspective they suggest shows that there is a widening trade gap
for the United States.

"They put their finger on something," he said. "But at the end of the day
you are seeing imports growing to one-and-a-half times greater than
exports, and the trend is continuing."

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