Bergsten neglects a large and important aspect of China's economy, the great gap between the people prospering from its economic boom and those who are not. This latter group numbers more than the entire population of the United States; dread of a slowdown in export-driven growth -- and a consequent drying up of a major source of jobs for Chinese workers -- is most likely why the Chinese government has been so reluctant to adjust its unrealistic exchange rate.

The EU GDP is comparable to the US GDP. Why isn't at least two of the three concerns about the US--budget deficit and protectionism--at least as applicable there? And why is a high current account deficit a problem simultaneously with possible increases in protectionism? That seems incoherent, unless he is worried that increasing US protectionism would trigger increasing protectionism elsewhere.

I agree with Sam - it is certainly odd that Bergsten ignores Europe (and, I'll add, Japan). To my mind, Europe's economic situation remains worse the America's - slower growth, higher unemployment. And his worry about our trade deficit is certainly related to Europe's weak economy. Ah well, anything to bash the US.

"Why isn't at least two of the three concerns about the US--budget deficit and protectionism--at least as applicable there?"

Well, the Euro area is running deficits but a) they tend to be smaller (in terms of GDP Ratio) than the US deficit and b) the size of their annual deficits tend to be less that the size of their debt repayments. So whilst they are still borrowing the size of their debt relative to GDP is falling.

In terms of protectionism ,as the EU runs a trade surplus there is really no benefit (or votes) in protectionism for the EU population. If the surplus were to become a deficit,of course, this could change.

Kenny, I did a quick check of the numbers before I posted.

I read the current US budget deficit as roughly 2.7-4.5% of GDP (depends on where you expect this year's budget deficit to end up; for long term outlook, you have to decide whether this year's budget deficit is an exception due to special circumstances or structural). According to Eurostat, in 2003, the eurozone ran a deficit of 2.7% of GDP, with France at 4.1% and Germany at 3.9%.

I don't understand your comment about protectionism. I'm sure sheep farmers in Australia and New Zealand (or more generally, agricultural producers nearly everywhere in the world) would be surprised to hear there were no votes in the EU for protectionism. (I generally agree there is little benefit to protectionism--who said this was about actual benefits?)

[Not an economist]

All this is true, so what are our chances if Senator Kerry wins, pulls out of the Middle East, puts up trade barriers, and restricts drilling for oil, in offshore waters and Alaska?

Besides that, what will he do when he has big spending programs that are either done with borrowed money (like now) or else through elevated taxes on the most productive people?

Is he going to restrict our ability to ship certain sorts of work offshore, and to invest overseas?

Our present situation is problemattic, but the alternate scenario doesn't seem very inviting, either.

"I read the current US budget deficit as roughly 2.7-4.5% of GDP (depends on where you expect this year's budget deficit to end up; for long term outlook, you have to decide whether this year's budget deficit is an exception due to special circumstances or structural). According to Eurostat, in 2003, the eurozone ran a deficit of 2.7% of GDP, with France at 4.1% and Germany at 3.9%"

I was using the oecd figures , which match your own,except it has a 4.8% deficit for the US. However if you also look at the debt repayments that the countries are also making then a different picture emerges.

In the Eurozone the deficit was 2.7% of GDP however the Eurozone made net debt repayments of 3.1% of GDP.

For the US ,however ,the deficit was 4.8% and the repayments amounted to 1.8% of GDP.

The EZ debt is therefore holding relatively steady(albeit france and germany's rose by around 1.0% of GDP) whilst the US's debt is rising. So the 'deficit crisis' is perceived as being a more a problem with the US more than the EZ.
Figures from http://www.oecd.org/dataoecd/5/51/2483816.xls
(the OECD figures include debts by all levels of government).

"I don't understand your comment about protectionism. I'm sure sheep farmers in Australia and New Zealand (or more generally, agricultural producers nearly everywhere in the world) would be surprised to hear there were no votes in the EU for protectionism"

Yeah , i really should have inserted the phrase "(except for agriculture)" in my post.

Outside of that sector (which contributes less than 2.0% of GDP) i don't see much push from the EU (or more precisely the member countries) to
indulge in protectionism.

Even on agriculture there's an increasing body of opinion amongst the EU countries who don't benefit from it to start scrapping and reforming the CAP

[Definitely not an economist]

I was using the oecd figures , which match your own,except it has a 4.8% deficit for the US.

Dunno where that came from. Here is CBO:

"In the absence of further legislation, the federal government will record a total budget deficit of $422 billion in 2004, CBO anticipates--about $56 billion less than it estimated six months ago. That deficit would represent a record level in dollar terms, but at 3.6 percent of the nation's gross domestic product (GDP), it would be smaller than the deficits of the mid-1980s and early 1990s relative to the size of the economy (see Figure 1-1). Thereafter, if current laws and policies do not change, annual deficits will decline to 2.8 percent of GDP ($348 billion) in 2005 and to 0.4 percent of GDP ($65 billion) by 2014, for a cumulative 10-year deficit of $2.3 trillion, CBO projects (see Table 1-1). That cumulative deficit equals 1.5 percent of projected GDP over the 10-year period--up slightly from the 1.3 percent figure in CBO's March baseline."

http://www.cbo.gov/showdoc.cfm?index=5773&sequence=0

"Dunno where that came from"

The OECD figures include all levels of government in calculating the total debt.So adding the States deficits (> 90 billion in 2003) and county and city debts will get you up into the OECD's ballpark.

Two of the "challenges" (large budget deficits, protectionist trade measures) Bush bears considerable responsibility for.
But just as when his mess in Iraq worsens his margin in the polls betters, perhaps Bush's having made a mess of foreign trade in the past implies he's the man to manage it in the future.

Go read the Bergsten article-- it has realistic extimates of the deficit remaining at 5% of GDP for the next decade. But maybe if you look at it in term of the deficit as a share of domestic savings you can get a better idea. The Reagan deficits absorbed about 15% of total domestic savings -- both personal and business -- the Bush defict absorbs some 25% to 33% of total domestic savings, so if you look at it this way
it is much bigger. Moreover, this is the big difference between the US and Europe and the reason Bergsten does not have to talk about Europe. Europe still has a surplus of savings so they can finance their deficits internally, and have a surplus to send to the US. But the US is completely dependent on maintaining an ever growing inflow of foreign capital and the share of total world savings is getting so large it is starting to crowd out the rest of the world. What kind of rational world is it when the world supply of savings is used to finance current consumption by the wealthiest country while the poorest countries are denied the investment capital they need to grow? For a quarter century we have financed our high living standards on the backs of the mid-east poor and you wonder why Ben Laden has a massive following among the arabs.