As Lord Tweedsmuir of Elsfield and as Governor-General of Canada, working in his library at Rideau Hall, the Scottish novelist and historian John Buchan wrote of his strong affection for America and for Americans. "I have a liking for almost every kind of American," he said, "except for the kind who decry their own country." Were he alive today, he might add the xenophobic Americans who decry every country except America. And the foreign trade that goes with them.
For these Americans, life in the world's richest country is a hurting experience and the hurt comes from foreigners. American jobs have gone foreign. American businesses have gone foreign. American debt has gone foreign. And they have. At precisely the same time as more Americans are working than ever before. At precisely the same time as Americans are earning more money than ever before. At precisely the same time as American productivity gains have left the rest of the world far behind. At precisely the same time as the American economy has experienced its most prolonged period of rapid growth since the 1980s -- and with no end in sight.
As befits the Americans' greatest trading partner, Canada hasn't done badly, living off the avails of American trade deficits. In the United States, gross domestic product per capita is now $40,100 (U.S.), in Canada $31,500, roughly the same proportion as it was 40 years ago. By comparison, China's GDP per capita is $5,600, which puts the world's most populous country just below Kazakhstan, Turkmenistan and Albania, No. 121 in its production of wealth. Canada is No. 15. It's sobering to contemplate where we would rank without our American sales slips.
Every month, the U.S. announces another huge trade deficit with the rest of the world. Every month, the American xenophobes call on the White House to do something to stop them from happening. They demand tariffs. They urge currency manipulations. They press for industrial subsidies. Any of these actions could be disastrous; all of them, together, would end American economic growth in a heartbeat.
Canada's colony of anti-Americans, normally noisy, is quiet in this argument. Canada runs a trade surplus with the Americans. Surpluses, naturally, are good -- especially when the Americans get stuck with the minus signs. As long as the minus sign goes to the U.S., we assume we have no cause for economic or ideological alarm. This is absurd. Adam Smith said so, and said so using precisely the same word: "Nothing can be more absurd," he wrote, "than this whole doctrine of the balance of trade." In fact, every act of trade is a balanced entity, complete in itself. Taken together, the same balance holds regardless of the number of transactions or the number of borders crossed in the process.
Looking at U.S. trade deficits as a practical matter, what balances what? On the one hand, because they import more goods than they export, Americans have a current account trade deficit of $600-billion a year. On the other hand, the rest of the world has a need -- or what one economist calls a "persistent dependence" -- to sell Americans $600-billion a year more in exports than they import. If the U.S. reduced its purchase of foreign goods through protectionist mechanisms, global commerce would grind more slowly, countries would fall into recession.
The U.S. trade deficit with Germany in May was $4.5-billion. Without these exports to the U.S., could Germany avoid recession? In the same month, the U.S. deficit with Europe as a whole was $12.1-billion. With Japan, $6.6-billion. With China, $15.8-billion. With Canada, $5.4-billion -- on an annual basis, more than $2,000 in U.S. trade deficit spending for each man, woman and child. (Americans are now buying 100 per cent more made-in-Canada goods than they were only 10 years ago.) When these "deficit dollars" disappear, what will be our growth rate? Our unemployment rate?
The Americans have run trade deficits every year since 1976. Every year now, they set records in productivity advances. They could reduce their trade deficit in a number of reasonable ways at any time. By spending less money, for example, and saving more. And perhaps they should. This, though, will reduce U.S. purchases abroad and at home, gearing down the country's rate of growth, and risking deflationary recession. For now, at least, the U.S. is making the world work. John Buchan was right. Of all the nations, he said, only America was fit for export.
Neil Reynolds is an Ottawa writer whose columns on national economic issues appear Wednesday and Friday. He is the former editor-in-chief of The Vancouver Sun and the Ottawa Citizen.
