Rather than taking the US trade deficit as a measure of industrial decline, it is instructive to consider US exports and imports separately. The growth in the volume of US exports in the two decades up to 2007- even as the trade deficit accumulated- averaged a very robust 6.6 percent, leaving it only marginally behind Germany and China, the world's largest exporters; it was the relative expansion of US imports that was the source of the growing deficit. The deficit, in other words, primarily came from increased US consumption, which grew faster than in other advanced capitalist countries. This was partly linked to the very high income growth and conspicuous consumption of the most well-off segments of the US population, but it was also due to much faster population growth than in Europe and Japan, the longer hours worked by much of the US population, and, very significantly, their increased consumer debt. This was supported by the international flow of funds into the US despite the size of the trade deficit. It was in good part US consumer spending that maintained effective global demand into the first years of the twenty-first century. The US trade deficit was not an adequate measure of the overall productive power of American capital; rather, it indicated its place in global capitalism. The case of the Apple iPod illustrates this at a product level; since its final point of assembly was China, each iPod sold in the US represented an increase in the US trade deficit of $145, even though it involved an increase in the surplus captured by Apple from domestic- and especially- foreign labor.
The average annual real rate of growth of the American economy in the quarter-century after the resolution of the crisis of the 1970s (from 1989 to 2007) was 3.5 percent. This was higher than in any similar period from 1830 to 1950, and was only marginally less than during the so-called postwar 'golden age'; and, unlike then, US GDP growth in the quarter-century after 1983 surpassed that of the other advanced capitalist countries. In the years from 1950 to 1973, US manufacturing productivity growth averaged 2.5 percent, well below that of the other advanced capitalist countries; between 1983 and 2007, it increased quite dramatically to 3.5 percent, running ahead of all the other G7 economics. And in terms of attractiveness as a place for capitalists to invest the US was still, despite the wide dispersal of FDI to Europe and Asia by 2007, the largest single recipient of FDI inflows, and the rate of US manufacturing productivity growth ran considerably ahead of the growth in labor compensation at home. As a result, the share of after-tax corporate profits relative to US GDP earned by American corporations in 2006 was at its highest level since 1945.
Moreover, US MNCs' operations abroad consistently contributed about 30 percent to total US profits in the new millennium, compared with less than 20 percent in the 1980s. At the same time, the foreign operations of so many American banks (in 2007, Goldman Sachs had about 8,000 people in Europe, including consultants, over four-fifths of them in London) were a significant factor in the increasing share of total profit going to US finance. Notably, those profits increasingly came from the fees charged for the provision of an array of services (some of them payroll and accounting outsourced from industry) rather than returns on loans (the share of the total bank income coming from services other than interest on loans rose from 15 percent to 35 percent between 1990 and 2006).
It was largely the failure to take sufficient account of the dominance and integration of American production and finance that led to the misreading of what US trade deficits signaled by way of undermining the value of the dollar and its place as the world currency. It was the balance of capital flows more than the balance of trade that now determined the dollar's value. The issue of US 'imbalances' that so many observers were fixated on in the first years of the new millennium failed to capture this central point. Far from the capital inflows signaling the dollar's weakness, and being significant mainly in offsetting US trade deficits, they highlighted the central role of US banks and MNCs in the global economy, and the extent to which the integration of so many Third World countries was dependent on the pull of both US consumer and financial markets.