Washington’s Balancing Act Gets More Difficult

I’ve talked about the rising trend of the U.S. trade deficit in the past. While the government and many U.S. manufacturers may not like it, the American consumer is clearly benefiting from lower prices at the cash registers. The rising trade deficit remains a very hot issue in Washington, and it will get even more heated going forward.

 Washington is not happy after the current record $232.5 billion U.S. trade deficit with China. There has been constant pressure on Beijing to allow more flexibility to the Yuan, which has been edging higher, but remains well below what many believed is the fair market value.

 Until now, there was speculation that Congress would need to enforce higher tariffs on Chinese imports. Now it seems like this speculation may escalate — especially since March 30 when the Bush administration suggested that it would impose economic sanctions against China in order to protect American paper producers from “unfair Chinese government subsidies.”

 The decision to initiate tariffs could now filter to other areas of American industry, including steel, textiles, furniture, clothing, and just about anything else you can think of.

 While protecting American jobs is foremost, you must also consider the real fact that tariffs will increase the price of many goods in the U.S., thereby threatening to slow down key consumer spending and reduce disposable income for Americans, especially those in lower tax brackets who benefit from cheaper goods

 As I said in the past, there is a tradeoff here. The unfortunate loss of jobs in the U.S. manufacturing sector is not easy to accept, but, at the same time, consumer hungry Americans are paying less for many goods such as clothing, electronics, and food. This helps many U.S. businesses. Washington must not lose sight of this when working on its trade policies. So the strategy to control the trade deficit will need to be carefully thought out. Washington must balance the trade deficit with the lower costs paid by American consumers.