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Home Publications Blogs CEPR Blog Representative Ryan's Plan Would Increase U.S. Borrowing from China and Other Foreign Creditors by Almost $1 Trillion

Representative Ryan's Plan Would Increase U.S. Borrowing from China and Other Foreign Creditors by Almost $1 Trillion

Written by Dean Baker   
Tuesday, 05 April 2011 12:41

That's the analysis from the Heritage Foundation. They calculate the cumulative trade deficit over the next decade will be almost $1 trillion greater under the plan put forward by Representative Ryan than under the current baseline. This is measured in 2005 dollars. If we used current dollars then the sum would be more than $1.3 trillion over the course of the coming decade.

The borrowing from China theme is one that many of the deficit hawks have harped on repeatedly so it is interesting that their own plan, by their own assessment, will lead to more borrowing from China and other foreign investors than the status quo. This analysis is helpful because it points out that our borrowing from foreigners is determined by the trade deficit, not the budget deficit. So even though Representative Ryan's plan is projected to substantially reduce the budget deficit, it still leads to a larger trade deficit and more borrowing from abroad.

Of course caution would be advised in using the Heritage Foundation analysis that is the basis of these projections. This analysis shows the Ryan plan creating an additional 831,000 jobs compared with the baseline over the year 2012. This additional job growth is projected to be associated with a 2.1 percentage point decline in the unemployment rate. With a civilian labor force of more than 150 million, this doesn't seem to add up. The Heritage Foundation projections also show the unemployment rate falling to 2.8 percent by 2020, a level not seen since the end of World War II.

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