A Protectionist Backfire; The U.S. trade deficit is closing in on $800 billion per year, or about $3 billion per business day.

Byline: Stephen Roach (Roach is the chief economist at Morgan Stanley.)

America is turning protectionist at just the time when its need for foreign capital has never been greater. China-bashing is on the rise again, and a political firestorm forced a Dubai company to give up its acquisition of U.S. shipping facilities last week. This backlash reflects a highly combustible mixture of bad economics and populist politics.

Notwithstanding heartfelt concerns over matters of national security in a post-9/11 world, there is a very basic point that has been overlooked in this debate: the United States no longer has the internal wherewithal to fund the rapid growth of its economy.

America's net national saving rate--the combined saving of individuals, businesses and the government after adjusting for depreciation--fell into negative territory at minus 1.2 percent of national income in late 2005. That means the United States doesn't save enough even to cover the replacement of worn-out plants and equipment. This is a first for America in the post-World War II era--and a first for any hegemonic power over a much longer span of world history.

Faced with a shortfall of domestic saving, countries can curtail economic growth or borrow from the rest of the world. The first option just doesn't cut it in the land of abundance. That leaves the second option: borrowing. So America must run a massive current-account deficit to attract the foreign capital it needs to fund economic growth. And massive it is--now closing in on $800 billion per year, or about $3 billion per business day, up from $2 billion just two years ago.

That's where China and Dubai fit into America's equation--as important pieces of the external funding puzzle. Thanks to China, the United States got a rather extraordinary deal for its trade-deficit dollar in 2005--a net balance of some $200 billion in low-cost, high-quality Chinese-made goods that enlarged the purchasing power of American consumers. If Washington politicians close down trade with China by imposing high tariffs or forcing a major Chinese currency revaluation--the intent of a bipartisan coalition headed by Sens. Charles Schumer and Lindsey Graham--those actions could easily backfire.

Absent the China supply line, the trade deficit wouldn't shrink, as the politicians imply. Instead, the trade gap would merely gravitate toward other foreign producers--most likely those who don't enjoy China's low-cost and pricing advantages. That would amount to a tax on the ...