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U.S. Trade Deficit Hangs In a Delicate Imbalance

Miller, who visited Hong's apartment in Seoul for the first time last year, finds the thriftiness hard to understand: "I'm born and raised in Brooklyn, New York, and the apartment where I grew up was nicer than the one in the elite area where he lived." (Hong moved a few months ago to a more luxurious apartment in a Seoul high-rise, though it is still far from the opulence that American multimillionaires typically enjoy.)

In contrast with the United States, where the personal savings rate recently has sunk into negative territory -- with people spending more than their income -- South Korea's personal savings rate is about 7 percent, and its national savings rate of 33 percent ranks among the highest in the world. The rate reflects the thrift not only of individuals but also of government and business; the South Korean government has run budget surpluses in recent years, so it need not borrow large sums as the U.S. government must.

In interviews with HJC workers, the least thrifty among them reported saving 10 percent of income, and the most thrifty put saving at 60 percent. Typical was the response of Kim Tae-young, an HJC engineer, who said: "My wife just gave birth to twins. I used to save 50 percent, but the cost of the children is very high, so now I'm down to 20 percent."

South Koreans are unaccustomed to the borrow-and-spend lifestyle of Americans. A couple of years ago, a short-lived government campaign aimed at encouraging spending led Korean banks to hand out credit cards to millions of consumers with few questions asked -- resulting in widespread defaults by people who had never used such cards to borrow for their personal expenditures.

The upshot: With its high level of savings, South Korea has a trade surplus. The two go together, just as low savings go with trade deficits. By running those surpluses, South Korea is in effect squirreling away resources for the future -- probably more than it needs to, many economists contend -- at the expense of current consumption.

By posting big deficits, the United States is going to the opposite extreme, behaving like an individual who borrows year after year to cover the gap between spending and income. America's creditors have recently shown a remarkable willingness to cover that gap; in September, foreigners bought a record $101.9 billion in U.S. securities, mostly bonds, according to government data released Wednesday.

But foreigners might get nervous about the rising U.S. debt load and insist on earning much higher interest rates on their U.S. bonds. That could squeeze U.S. living standards, as industries such as housing and autos falter for lack of low-cost credit. Worse, an avalanche of selling by foreign holders of U.S. bonds and stocks -- triggered, perhaps, by a terrorist attack or a surge in inflation -- could spell economic calamity worldwide.

The risks increase the longer the imbalance persists, said Cline of the Institute for International Economics, adding, "Do we want to get ourselves, and for that matter our children, in a situation where we want to have to take an enormous hit because we have been increasingly enjoying excess consumption?"

The Spendthrift

Miller did not always live comfortably. His father, who immigrated from Russia, stitched suits in a New York factory, and his mother worked as a clerk in an insurance company. Now, however, he savors the rewards of heading a company that sells 600,000 helmets a year and pulls in nearly $100 million in revenue.

Strolling through the parking lot outside Helmet House's main facility, Miller pointed to a Mercedes SL500. "That's my weekday car," he said. "My weekend car is a BMW X5. My wife drives a Jaguar. We've got about $200,000 in our garage." And opening the door to a small building, Miller revealed his "passion" -- a 1951 Cadillac convertible, a 1955 Mercedes Gullwing, a 1957 Chevy, a 1971 Mercedes convertible, and a 1979 Ferrari in pristine condition.

He usually leaves the office by 5 p.m., he said, and he does not work at home or on weekends. He, his wife and 17-year-old son have traveled widely, both in the United States and abroad. Miller, a fervent Los Angeles Dodgers fan, holds season tickets to the team's games, and his office wall is plastered with memorabilia from a Dodgers "fantasy camp" he attended. Before his son was born, he recalled, "I could say to my wife, 'Let's go to San Francisco for lunch' -- and we'd go up on an airplane, have lunch, and come back." These days, such jaunts are limited to Las Vegas, where "I go every couple of months, to loosen my belt."

Miller has sunk much of his wealth into shopping centers and other real estate, so he does not have to fret about saving. But the lack of thrift characteristic of Americans is evident among his employees. In interviews, several reported saving well under 10 percent of their incomes, and even putting aside that much is difficult, they said. Few put the maximum allowable amount in the company's 401(k) savings plan, according to Chief Financial Officer Randy Hutchings, and a substantial number do not contribute at all.

"I would venture to say that of my 125 employees, 80 percent live paycheck to paycheck, and maybe even before paycheck to paycheck," Miller said. "There are employees I've had, when they earned $50,000, they owed money; when they earned $100,000, they owed money. It's not what they earn; it's just the way they do things."

Small wonder, given such saving and spending patterns, that the global trade imbalance continues to burgeon.

Miller is doing his part. "I live the American life," he said.

Scott Hong is doing his part, too. Now responsible for HJC's exports to Europe, he visited about 200 dealers in 2004. "This year," he said, "my target is 300."


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