TOPICS > Economy

U.S. Trade Deficit Grew to Record $61 Billion in February

April 12, 2005 at 12:00 AM EDT


RAY SUAREZ: The U.S. trade deficit topped $61 billion in February, a new monthly high, according to a report released today by the Commerce Department.

This follows last year’s annual trade gap of $617 billion, also a record; a record the U.S. is on track to beat this year.

To discuss how American companies are coping with international competition, we are joined by two business executives. Terrence Straub is senior vice president of United States Steel Corporation and Dan Shugar is president of PowerLight Corporation, a solar energy company.

And Terrence Straub, right now we’re on track in the United States to import something north of $700 billion more than we export to the rest of the world. If you’re someone selling a manufactured item into a world market, what does it mean to you?

TERRENCE STRAUB: Well, the trade deficit is a serious problem for the U.S. economy. And by any measure, it’s, I think reflective of a failed U.S. trade policy. The current account deficit, which is essentially the trade deficit, has expanded, really exploded in recent years.

I know we were screaming in 1992 when it was $50 billion a year. We are now at over $650 billion a year, headed north of $700 billion, as you said. Ray, this is the transfer of $700 billion of American wealth out of the country on an annual basis.

We are not paying for our imports with our exports. We are paying for it with American wealth. And that is a dangerous trend. It’s not a danger to only one or two sectors of the economy.

In our opinion, it’s a danger to the entire manufacturing sector that has lost almost three million jobs in the last four years. This is a significant moment, really a turning point in my opinion in American trade policy, and one that really needs to be called into question.

RAY SUAREZ: Dan Shugar, is it different for PowerLight, a company that is more heavily export oriented than U.S. Steel is?

DAN SHUGAR: Well, Ray, I certainly agree with Terry about the magnitude of the problem nationally. However, with some of the developments internationally, embracing environmental movement for example, the ratification of the Kyoto Protocol, there is an opportunity for U.S. companies that have innovative technologies like PowerLight, to export those to Europe and to Asia.

And so our strategy was basically to respond to market opportunities, determine where we could add value, establish an office in Europe and substantially increase our export balance last year.

RAY SUAREZ: What is it that you’re making?

DAN SHUGAR: We are in the solar electric products and services business. So what we were able to do last year is establish a very large solar electric plant over in Europe. We built the largest plant in the world in southern Germany.

And so it’s a great opportunity for U.S. companies that have a variety of alternative energy opportunities to export their know-how and export their products and capitalize on those market opportunities globally.

RAY SUAREZ: The time that the United States Trade Deficit has been widening has also been a time when the U.S. Dollar has been getting weaker. Has that changed things for your company, changed the landscape for people trying to export to countries in other parts of the world?

DAN SHUGAR: Well, there definitely is an opportunity to capitalize on the weak dollar when you export. Of course companies have to hedge those currency valuations to mitigate the risk. But it is an opportunity to capitalize on that through export, and pick up a trade surplus.

RAY SUAREZ: Terrence Straub, if you are working in mostly a domestic marketplace, what difference does it make that the United States is importing more than it exports? How does your company fit into a wider set of concerns for the American economy?

TERRENCE STRAUB: Well, it’s just that way because when you look at the whole of the manufacturing sector in America, that’s our customer base. When they do well, we do well. When they don’t, we don’t.

The exporting of American jobs, the exporting of the manufacturing base in America is directly related to the import problem. This would not be a problem if everybody else in the world was playing by the same set of rules.

I have the impression that sometime ago most of the industrialized countries sat down at their own tables and said to themselves, or asked themselves, “what’s good for us as a country?” And they answered that question by saying, “Let’s build a trade policy around that.”

And for reasons that fail to escape me, we don’t seem to do that in the United States. This is, by the way, Ray, not a problem of a Republican administration or a Democratic administration. This has been going on for 20 years now plus.

Classic economists would tell you that the corrector in this process is the exchange rate, that in fact, when the trade deficits get out of balance, the dollar would weaken; you would be more competitive both at home and abroad as a domestic manufacturer.

But that’s not really the case here. These trade deficits that we are running, and by the way, we are running them with every industrialized country in the world. And they’re getting bigger on a monthly basis and on an annual basis with every industrialized country in the world.

So what’s the difference? What is going on here? What is going on here is that I would say many of our trading partners are playing by a different set of rules. There are currency manipulations; there are border adjustable tax issues. There are things that we could be doing immediately as a government, as a country to confront these issues that we don’t seem to be willing to do.

So I would say to you that unless and until we are ready to construct a new paradigm in America as to how we engage with our trading partners, realizing that at the end of the day we have a very serious problem just recognizing the problem would be a big step forward I think by our government.

There are some in our government that will still continue to tell you that these incredible trade deficits are the sign of a healthy economy. It’s an astonishing statement to me.

And, secondly, realizing the strength of our bargaining position; this is the richest, most open and attractive market in the world. Everybody wants to be here. And that’s a leverage pointed, a significant leverage point to force some change.

RAY SUAREZ: Dan Shugar, you’ve just heard your colleague talking about free and fairer trade, and everybody playing by more harmonized rules. Would that help you? Would that change a more export-oriented company’s ability to do business in other places in the world?

DAN SHUGAR: Yeah, Ray, I agree that there are a lot of things that we could do to really help drive both exports as well as drive a manufacturing base here in North America.

For example, on the clean energy side of things, in Europe and in Asia, especially Japan, there are incentives for manufacturers to be able to increase their manufacturing capacity, create more local jobs to serve those local markets.

One of the reasons we looked abroad to export our technologies is that we had, you know, continued to grow to a point where we were, together with our local company, saturating the North American market.

What we’ve seen in Japan and Europe is that they’ve made incentives available to help alternative energy companies like solar power technology companies, build capacity there to serve the local market.

So it would be very productive, I believe, to put smart incentives in place as well as energy policies that promote renewable power so we can manufacture our own power solutions right here with American jobs and put them en route, both to solidify the domestic market and help us with export opportunities.

RAY SUAREZ: Terrence Straub mentioned that that deficit is being run, not just with China, which is a quarter of the entire number, but with every industrialized country in the world. Is it making those countries richer and better customers for you?

DAN SHUGAR: Well, I feel that these countries are doing what they need to do to meet their energy needs and both by improving the efficiency as well as importing a lot of renewable energy and solar power technologies.

I feel that we’re missing a great opportunity here to use American ingenuity, know-how to harvest our technology and know-how to create our energy solutions right here at home.

But despite that, the solar power market has grown hugely, about a 50 percent annually compounded growth every year for the last five years, so this year it’s expected to be an $8 to $9 billion industry; so a very substantial industry. I just think we can take it to the next level and I agree with Terry on that point.


RAY SUAREZ: Very quickly, where does this all lead? Is there a stop point at which we can’t as an economy continue to do this?

TERRENCE STRAUB: No, I think the answer is: there is. I don’t think I know where it is or anybody. I would just say that last week Paul Volcker wrote in the Washington Post that we are soaking up the U.S., 80 percent of all the international capital flow; it’s coming in to service our trade debt and our trade deficit.

And at some point the international banks will have their fill of dollars. And that may well precipitate a crisis and that will be a time of reckoning; that will be a moment of reckoning for us and the rest of the world.

RAY SUAREZ: Terrence Straub, Dan Shugar, thank you both.


DAN SHUGAR: Thank you.