The Daily Signal - Victor Davis Hanson: Chuck Schumer, Nancy Pelosi and Warren Buffet Were Right, Trade Deficits Matter

Starting point is 00:00:00 We've been warned that trade deficits of the last consecutive 50 years really don't matter because we grew so much in our GDP and our per capita income. There were other factors that allowed the trade deficits not to matter as much because we were not running huge budget deficits nor national debt. Look at the budget. Just to go back to that year, 25 years ago, we were running, I can't believe it, a $236 billion surplus. This was the grand, Gingrich Speaker of the House, Bill Clinton. budget that was still in effect, we were adding to our national wealth by 2.4% plus of GDP. Now we're running a $1.8 to $2 trillion annual deficit. Hello, this is Victor Davis-Hansson for the Daily Signal. I want to talk about red ink.

Starting point is 00:00:57 Red ink is manifested in trade deficits, budget deficits, and national debt. They're all connected. But here's my point. We've been warned that trade deficits of the last 50 years, consecutive 50 years, really don't matter because we grew so much in our GDP and our per capita income. But there were other factors that allowed the trade deficits not to matter as much because we were not running huge budget deficits nor national debt had not climbed to the present levels, as well as we weren't the beneficiary. of a tech revolution in Silicon Valley, and we were not yet beneficiaries of being a net oil producer rather than importer. But let me get to my point. In 2000, I'm just taking an arbitrary year a quarter century ago, Nancy Pelosi, Chuck Schumer, and other Democrats made an impassion case that it was unsustainable to have a hundred billion dollar deficit with China in particular, and to run up a $370 billion deficit, trade deficit in general.

Starting point is 00:02:08 That was over 3.6, 3.7% of GDP. In 2025, despite the spectacular growth in GDP, we're running a $300 billion, roughly, trade deficit with China, and a $1.1 trillion overall, trade deficit with the rest of the world, including China, that's well over three, that's up into the 4%. What am I getting at? At the time that they were worried about this, a quarter century ago, we had prominent economist who said that if you got over 3% of your trade deficit, you're too deeply leveraged by foreign influences that could buy property, too much bonds they held of American debt, they would get influence, etc. Warren Buffett in 2003 warned us in his annual letter that was published in Fortune

Starting point is 00:03:06 magazine. As late as 2018, Jason Furman, the Obama economist warned in the Wall Street Journal of all places, you don't want to go over 3% of a GDP with your annual trade deficits. So why we were doing this for the last quarter century and why we now have, you know, 1. trillion and we're up to 4% of GDP in our trade deficit. Look at the budget. Just to go back to that year, 25 years ago, we were running, I can't believe it, a $236 billion surplus. This was the grand, Gingrich Speaker of the House, Bill Clinton budget that was still in effect. And we were adding to our national wealth by 2.4% plus of GDP. Now,

Starting point is 00:03:59 we're running a $1.8 to $2 trillion annual deficit, and that is a minus 6.4% of GDP. That has an influence on the trade deficit. And in addition, the debt, the debt was $5.6 trillion a quarter century ago. That was high, but it was still only about 32, 33% of GDP today, a quarter century ago. later, the national debt is $37 trillion. That's 125% of GDP. What is my larger point? Trade deficits don't matter as much if your national debt is 30 or 35% of GDP. Or you're running budget deficits that are manageable. But they do matter when you've got 125% percent of GDP, with your total debt, your $37 trillion debt, which is $125% GDP, and you're running $2 trillion trade deficits. What has saved us in the past?

Starting point is 00:05:14 We were the world's reserve currency, and we had 40% of the world's market. People wanted to get in here, so they were willing to carry paper for us. but when you've got $37 trillion, that's very different than $5 trillion just a quarter century ago. We had a oil revolution with fracking and horizontal grilling. We went from paying an exorbitant amount of money to the Middle East and elsewhere to being really a net exporter. If you look at all the ways that we produce oil versus the oil we buy, and of course we had $9 trillion in market capitalization that flowed into Silicon Valley to Apple, Google and these other startups that became mega and global corporations.

Starting point is 00:06:00 My final point, trade deficits matter now. We are being crushed by budget deficits, national deficits, and trade deficits. And the people who warned us about this a quarter century ago, when we did not have this problem with the national debt or the annual budget debt, were none other than Democratic Congresswoman Nancy Pelosi, Senator Chuck Schumer, investment guru, Warren Buffett, Jason Furman, Obama, an economic advisor, and the Wall Street Journal. So trade deficits matter. We've got to get them down because we have no room to maneuver given our budget and our national debt. This is Victor Davis-Hansson

Starting point is 00:06:42 for the Daily Signal. Thank you for tuning in to The Daily Signal. Please like, share, and subscribe to be notified for more content like this. You can also check out my own website at victorhansen.com and subscribe for exclusive features in addition.

The Daily Signal - Victor Davis Hanson: Chuck Schumer, Nancy Pelosi and Warren Buffet Were Right, Trade Deficits Matter

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