While much focus in the energy security debate goes to military expenditures — spending America’s “blood and treasure” keeping oil flowing freely, The Economist (www.economist.com) reminds us of another financial cost of our energy insecurity — America’s dangerous trade imbalance.

“As the economy recovers, both imports and exports are growing. But imports are growing faster, and America’s trade deficit is therefore widening out from its low recession levels. Where current account deficits are concerned, public hand-wringing has overwhelmingly focused on China, and particularly on the effect its currency policy has on the relative price of its exports. But China is not driving rapid growth in the trade deficit. Imports to America from China returned to more-or-less normal levels as of December, but exports to China hit
their highest level ever in that month. What is pushing up the trade deficit is petroleum imports.”

We’ve made this point before, but it bears repeating until our political leaders start paying attention:  We are at dangerous economic risk because of an unsustainable trade deficit.  And for all of the lip service paid to the issue, none of the pending “energy and climate” bills would make a serious dent in our dependence on foreign oil and the trade deficit that dependence spawns.  Back to The Economist:

“For much of the previous decade, the petroleum deficit hovered at a level around a third of the total trade deficit. It’s now over half of the total trade gap. Now it is true that dollar depreciation would have an impact on this factor, by boosting the price of oil products in America (which would increase the deficit) leading to falling consumption (which would decrease it). But that doesn’t really have much to do with the relationship between the dollar and the renminbi. Indeed, RMB appreciation would slightly improve America’s trade deficit with China, but it would also increase Chinese consumption of petroleum, which would likely increase oil prices and consequently the American petroleum deficit.

“The bottom line is that Chinese revaluation would only make a minor dent in the American current account deficit. A potentially bigger problem is oil dependence. American demand for petroleum is relatively inelastic, so rising oil prices will tend to push up oil imports and the deficit. And recession aside, oil prices have trended upward for most of the past decade. But for that America’s current account would look a lot more balanced.”

Right on the mark.  The only tool that can temporarily reduce our dependence on foreign oil is recession.  That’s not an energy policy.

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