October 28th, 2011
12:06 PM ET

America's other 87 deficits

Editor's Note: Stephen S. Roach, a member of the faculty at Yale University, is Non-Executive Chairman of Morgan Stanley Asia and the author of The Next Asia.

By Stephen S. Roach, Project Syndicate

The United States has a classic multilateral trade imbalance. While it runs a large trade deficit with China, it also runs deficits with 87 other countries. A multilateral deficit cannot be fixed by putting pressure on one of its bilateral components. But try telling that to America’s growing chorus of China bashers.

America’s massive trade deficit is a direct consequence of an unprecedented shortfall of domestic saving. The broadest and most meaningful measure of a country’s saving capacity is what economists call the “net national saving rate” – the combined saving of individuals, businesses, and the government. It is measured in “net” terms to strip out the depreciation associated with aging or obsolescent capacity. It provides a measure of the saving that is available to fund expansion of a country’s capital stock, and thus to sustain its economic growth.

In the U.S., there simply is no net saving any more. Since the fourth quarter of 2008, America’s net national saving rate has been negative – in sharp contrast to the 6.4%-of-GDP averaged over the last three decades of the twentieth century. Never before in modern history has the world’s leading economic power experienced a saving shortfall of such epic proportions.

Yet the U.S. found a way to finesse this problem. Exploiting what Valéry Giscard d’Estaing called the “exorbitant privilege” of the world’s reserve currency, the U.S. borrowed surplus savings from abroad on very attractive terms, running massive balance-of-payments, or current-account, deficits to attract foreign capital.

The U.S. current account, which was last in balance in 1991, hit a record deficit of $801 billion (6% of GDP) in 2006. This gap has narrowed in the past couple of years, but much of the improvement probably reflects little more than the temporary impact of an unusually tough business cycle.

This is where America’s multilateral trade deficit enters the equation, for it has long accounted for the bulk of America’s balance-of-payments gap. Since 2000, it has made up fully 96% of the cumulative current-account shortfall.

And that is what ultimately makes the China-centric blame game so absurd. Without addressing the root of the problem – America’s chronic saving shortfall – it is ludicrous to believe that there can be a bilateral solution for a multilateral problem.

Yet that is exactly what U.S. officials, together with many prominent economists, believe America needs. Since the trade deficit is widely thought to put pressure on U.S. jobs and real wages, the U.S.-China trade imbalance has come under special scrutiny in these days of great angst. Yes, China does account for the largest component of America’s multilateral trade deficit – making up 42% of the total trade gap in 2010. Conscious outsourcing and supply-chain management decisions by U.S. multinationals play an important role in exaggerating China’s share. But that does little to let China off the hook in the eyes of Washington.

Long-standing charges of currency manipulation provide the proverbial smoking gun that U.S. politicians – of both parties – believe justifies the imposition of steep tariffs on China’s exports to the U.S. (which totaled $365 billion in 2010). That was precisely the argument behind the U.S. Senate’s recent overwhelming approval of a “currency bill” that took dead aim on China.

While it may be expedient to hold others accountable for America’s problems, this is bad economics driving bad politics. In an era of open-ended U.S. government budget deficits and chronic shortfalls in personal saving, America is doomed to suffer subpar savings and massive multilateral trade deficits for as far as the eye can see.

Closing down trade with China, while failing to address the saving shortfall, is like putting pressure on one end of a water balloon. The Chinese component of America’s multilateral trade deficit will simply migrate somewhere else – most likely to a higher-cost producer. That would be the functional equivalent of a tax hike on beleaguered American families – hardly the solution that U.S. politicians are promising.

This is not to ignore important U.S.-China trade issues that need to be addressed. Market access should be high on the agenda – especially for a sluggish U.S. economy that needs new sources of growth, like exports. With China now America’s third largest – and by far its most rapidly growing – export market, the U.S. should push hard to expand business opportunities in China, especially as the Chinese economy tilts increasingly toward internal demand. China should be viewed as an opportunity, not a threat.

At the same time, the U.S. government should come clean with the American public about charges of Chinese currency manipulation and unfair trade practices. The renminbi has, in fact, appreciated by 30% relative to the U.S. dollar since mid-2005. In broad multilateral terms – a far more meaningful gauge because it measures a currency’s value against a broad cross-section of a country’s trading partners – the “real effective” renminbi currently stands about 8% above its most recent 12-year average (1998-2010).

Yes, China continues to accumulate vast foreign-exchange reserves. But this is as much the result of speculators’ “hot money” plays as it is a conscious and perfectly reasonable effort by Chinese policymakers to remain focused on financial stability and manage currency appreciation in a gradual and orderly fashion.

China-bashing in the U.S. speaks to a corrosive shift in the American psyche. It deflects attention away from those truly responsible for perpetuating the greatest saving shortfall in history. The U.S. has been seduced by the political economy of false prosperity. That seduction has allowed America to live beyond its means for nearly two decades. Now the game is up.

The ultimate test of any nation’s character is to look inside itself at moments of great challenge. Swept up in the blame game, the U.S. is doing the opposite. And that could well be the greatest tragedy of all. After all, America’s 88 deficits did not arise of thin air.

The views expressed in this article are solely those of Stephen Roach. Copyright: Project Syndicate, 2011.

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Topics: China • Debt Crisis • United States

soundoff (20 Responses)
  1. Rita Policarpo

    Great article on the trade deficit. What alarms me is the simplification of complex issues which occurs on a daily basis. Analysis is reduced to sound bites. Keep up the good work!

    October 28, 2011 at 12:17 pm |
  2. Reliable

    A scholarly article, written in accordance to objective logic.

    October 28, 2011 at 1:14 pm |
  3. j. von hettlingen

    "The U.S. has been seduced by the political economy of false prosperity. That seduction has allowed America to live beyond its means for nearly two decades".
    True, but there were many sectors in the economy that had contributed to the spending spreee of the Americans. Apart from manufacturers, we have the advertising media and the entertainment business which were also responsible for the spending behaviour of consumers.

    October 28, 2011 at 5:31 pm |
    • seppe

      Right on, I may add that on less we put the brakes on the media there will be no return to civility ,its offensive to admit that less than 10 specimens of a national media are in control of 300 plus million with their life/money/future/and security etc...

      October 30, 2011 at 3:22 pm |
    • Tron

      釣魚島問題專家、香港中文大學亞太研究所研究員鄭海麟從釣魚台列嶼的歷史地位切入,直指釣島隸屬中國毫無疑義。他指出,中日兩國大量歷史文獻表明,最早發現、命名和使用釣魚台列嶼的是中國人,而不是琉球人或日本人。釣魚島列嶼並不屬於「舊琉球王朝的勢力所及範圍」,該列嶼在明朝便被納入中國海防及行政管制區域。

      一九五一年的《舊金山(三藩市)合約》根本沒有涉及釣魚台列嶼的主權問題。一九五二年美國託管當局將釣魚島列嶼劃入琉球列島地理境界的經緯度內,是極不適當和不合國際法的。因此,日本聲稱擁有該列嶼主權在國際法上不能成立。

      中國大陸學者近年來對釣魚島議題的研究下了很大工夫。清華大學當代國際關係研究院副院長劉江永教授指出,事實證明日本早在甲午戰爭前十年已知釣魚台列嶼屬於中國。

      日外務省當年編撰的《日本外交文書》第十八卷和第二十三卷中,對明治政府竊取釣魚島的決策過程有非常詳實的記載。換言之,釣魚台列嶼是日本乘甲午戰爭之機,未等簽署馬關條約而從中國竊取的。如今,日方稱其與馬關條約,即甲午戰爭無關,根本站不住腳。

      二戰後釣島問題懸而未決與美國介入密不可分。劉江永指出,一九七一年美國擅自決定將釣島的行政管轄權交給日本政府,遭到全球華人的強烈反對,掀起保釣浪潮,迫使美國迄今迄未承認日本擁有釣島的主權,而希望中日雙方和平協商解決。然而,二零一零年以來美國政府多次明確表示,釣魚島適用於美日安保條約第五條,「這是造成日本政府在釣魚島問題上有恃無恐採取強硬做法的重要外部因素」。

      事實上,東京法院曾經判定釣魚島屬於台北州。台灣光復前一年,台灣與琉球為釣魚島發生歸屬權之爭,當時該法院將釣魚台列嶼判決為台北州所有,更加證明釣魚島主權屬台灣。

      此外,中國大陸學者、上海社會科學研究院法學研究所副研究員、海洋法研究中心主任金永明,上海國際問題研究院學術委員會副主任、上海市日本學會會長吳寄南等,也發表論文,探索釣島的國際地位,力證釣魚島主權屬中華民族。

      台灣師範大學東亞系助理教授林賢參則從戰略意涵分析釣魚島問題的本質。他說,中國大陸追求成為「海洋強國」,企圖掌控西太平洋海域之制海權,會壓縮日本防衛之戰略縱深;政治大學亞太研究所副研究員李瓊莉,也提出國際經驗的比較。

      政大外交系教授趙國材說,釣魚台列嶼問題迄今無解,指出釣島問題不論從歷史地位或法律地位探討皆無意義,因為國際政治乃強權政治,關於釣島主權誰屬是老大哥美國說了算。

      趙國材又表示,台灣願意依聯合國憲章及國際法和平解決國際爭端的規範,從主權、戰略位置、海洋權益與維護資源等面向,以確保釣魚台列嶼領土主權完整,與日本談判,並保護台灣漁民權益。唯日方無意願與台灣談判主權問題,只願和台灣談判漁權,想透過台灣獲得漁權用來騙取釣魚台列嶼的主權。但保釣出身的總統馬英九並未上當,既要漁權也要主權。

      台灣有人主張拉攏美國介入東海爭端,使日本、中國大陸、台灣、美國形成四方機制,能更有效解決釣魚台列嶼主權問題,並提升台灣之國際地位。趙國材認為,這種做法可能會引狼入室,不見得對台灣有利,因為美日在外交上皆承認北京,與台灣沒有邦交,且釣魚台列嶼附近之海域處於防衛美國本土的第一島鏈上,可能牽動東北亞安全情勢和美日的戰略布局,美國在釣魚台列嶼問題上一向表態中立,骨子裏其實偏袒日本。

      台灣政治大學國際法學研究中心研究員邵漢儀首次全部全文公開日方釣島的新史料,掀起高潮。邵的父親邵玉銘當年留美時亦曾參與保釣運動,如今父子兩代同台參與釣魚島會議,傳為佳話。

      日本外務省於一九七一年提出的《我國關於尖閣諸島領有權的基本見解》聲稱﹕「自一八八五年以來,日本政府通過沖繩縣當局等途徑再三在尖閣諸島進行實地調查,慎重確認尖閣諸島不僅為無人島,而且沒有受清朝統治的痕跡。在此基礎上,於一八九五年一月二十一日,在內閣會議上決定在島上建立標樁,以正式列入我國領土之內。」

      為了調查日方說法的真相,邵漢儀曾親往日本查閱相關原件,包括仍未公開的明治時期史料。他從日本外務省外交史料館、防衛省防衛研究所圖書館,以及國立公文書館尋得近四十件原件,首次全部公開。他歷時兩年餘發現明治政府從未派員至釣魚島進行實地調查,所謂「再三」調查純屬捏造。

      韓國外國語大學教授黃載皓認為,今年三月中國發表國防白皮書,確立戰略目標是國家現代化、力主防禦性國防、與他國建立軍事互信,他懷疑中日會爆發大戰,也不認為日本會放棄二戰後的現代化貿然掀起戰端。不過,另一位韓國學者國家安保戰略研究院研究員朴炳光指出,韓日兩國近年提出擴大交流合作關係的「新時代」理念,但對於韓國,獨島攸關經濟及軍事戰略國家利益,不可能讓步。

      November 20, 2011 at 1:56 pm |
  4. rightospeak

    Actually the problem of deficits is not that complex. No savings ? Well ,because our government has anti-saving policy. Lack of jobs ? Importation of SLAVE LABOR PRODUCTS with which we can not and should not compete have killed ( offshored may be a better word ) jobs in this country. To add to the fire of deficits we have been practically in ENDLESS WARS since 1945 that drained our treasure and we have to borrow money from the Chinese at interest. Open borders to allow for an influx of slave labor and visa job programs to lower wages, created over 20 % unemployment – I know , Fareed ,you have rigged figures on that just like on COLA for SS-please do some reading, try Boskin Commision and its dirty tricks. Sometime , you in the media, need to stop whistling Dixie and present to the poblic a REAL picture.

    October 29, 2011 at 11:52 am |
    • seppe

      Dear sir, you are the one that don't care to see the real picture ,and this state of mind is watt got us in to this mess.nice keep it up,THINK ABOUT WATT TO DO INSTEAD OF PUTTING THE BLAME ON SOME ONE ELSE. we the American have invented this way of CONNIVING,and now every body else is bad.ON ONE THING YOU ARE RIGHT, THE MEDIA IS DOING VERY BAD JOB...

      October 30, 2011 at 3:08 pm |
      • Hannibal7

        You are not American. Even the dumest know how to spell "what".... NOT watt. Back to your tent.

        October 31, 2011 at 6:37 am |
  5. That'snotTrue:[

    Wow, an article that addresses the China bashing! Finally someone educated in this section!
    Keep up the good writing and try to educate more ignorants!!!

    October 29, 2011 at 12:48 pm |
  6. ram

    An advisor to President Nixon, Sir Kenneth Galbraith, said something like this:
    There cannot be a period of capital investment unless it is preceded by a period of savings. This was practiced by all nations in the world for centuries, pardon me since the beginning of time, but usa always wants to be the exception, by choice. They've got it! Live with it!

    October 29, 2011 at 2:04 pm |
  7. seppe

    Its time to stop this childish game of blame and finger pointing, no body did this to us ,no body put a gun to our head ,its time to grow up and start doing the right thing for a change...

    October 30, 2011 at 3:32 pm |
  8. Lester

    I actually think this is one of the poorer commentaries I read recently. The whole article depends upon some connection between savings rate and the trade deficit that is never really explained.

    October 30, 2011 at 6:44 pm |
  9. LP69

    The other 87 nations are manipulating their currency.

    October 30, 2011 at 10:45 pm |
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