Skip to comments.Are trade deficits a good thing or a bad thing?
Posted on 06/21/2012 11:06:18 AM PDT by moonshot925
The United States had a trade surplus every year from 1894 to 1970.
The trade deficits started in 1971.
1975 was the last year the United States had a trade surplus.
We have had a trade deficit every year since 1976.
His life must have really sucked before if he took this crappy job.
But your standard of living isn't too bad -- you just bought this super cheap TV from China.
How is taking my TV away going to increase my standard of living?
American workers are competing with people who have wretched lives. They work cheaper than we do. Which is why they have jobs and we do not.
We don't have jobs? I know Obama is trying really hard, but we're not there yet.
It's becuase we send our money overseas and we tell ourselves that this is making us rich.
North Koreans and Cubans don't get to buy much, if any, foreign goods. Their standard of living must be better than ours.
You are making the point that Cubans, Chinese, and North Koreans have poor standards of living. That's true. I admit it. Hey, in my last post I described a Chinese guy with a low standard of living.
But that's not the point of this discussion, and you know it.
If you and I live on the same street, and if we do business together, we would have a level playing field. If we mutually agree on an exchange of goods and services, then we can both come out ahead.
If we live under different economic and political rules, then the playing field is not level. Manufacturing moves to China because the rules in China allow very cheap manufacturing. The rules in America make manufacturing very costly. Labor laws, environmental laws, tax laws, etc. We cannot compete and so some jobs that were in America go to other countries.
The end result may be that we can buy really cheap stuff from China. But where are we getting the money? Well, we have a $15T deficit because we've been living a standard of living that is not something we can pay for. We have an enormous debt because we think we're rich and we are not. We manufacture money out of nothing, creating a US deficit SO THAT we can continue to send money overseas and buy things. The trade deficit exists because we have magic money from nowhere. That's how we pay for stuff.
This is not making us rich.
How is that possible? They aren't sending their wealth to another country.
Well, we have a $15T deficit because we've been living a standard of living that is not something we can pay for.
Yeah, the government spends way too much. What does that have to do with my purchase of foreign coffee?
We manufacture money out of nothing, creating a US deficit
Huh? Now my foreign coffee causes Federal Reserve monetary policy?
This is not making us rich.
My original claim said nothing about making us rich, it was simply the observation that being able to buy from anywhere in the world improves our standard of living.
None of your posts since than have disproved that.
Then let me start over.
1) I agree that my standard of living would be improved if I drank foreign coffee, had a nice big TV and drive a fine Italian sportscar. My life would be pleasant and enjoyable because I have these foreign goods available to me.
2) I maintain that it is a poor national economic policy for our government to put in place corporate taxes and regulations (labor, environmental, safety, etc.) which make it difficult for Americans to run profitable businesses in this country and thereby make it easier for companies in other countries to compete against us with low cost goods.
I believe both of these statements can be (and are) simultaneously true.
I would further maintain that a trade deficit, while it may help us have pleasant lives, is probably evidence that our national economic policy is flawed. As a nation, we spent money we do not have, to fund a lifestyle that we, as a nation, have not truly earned. It's been a pleasant ride, but eventually we need to pay for it.
Excellent! I like microeconomics.
I maintain that it is a poor national economic policy for our government to put in place corporate taxes and regulations (labor, environmental, safety, etc.) which make it difficult for Americans to run profitable businesses in this country and thereby make it easier for companies in other countries to compete against us with low cost goods.
Cool, now you want to discuss macroeconomics.
Yes, I agree that the government really makes it difficult to run a business in the US.
I would further maintain that a trade deficit, while it may help us have pleasant lives, is probably evidence that our national economic policy is flawed.
Or it is evidence that foreigners like to invest in the US.
As a nation, we spent money we do not have, to fund a lifestyle that we, as a nation, have not truly earned.
The nation doesn't earn or spend money. It's clearer if you discuss what Americans do or what our government does.
You never clarified your claim about monetary policy.
Neither, they’re just a thing. And these days it’s a thing that’s especially meaningless because software and entertainment (two of our biggest exports) are not considered in the math, so significant parts of inbound revenue don’t count.
Your posts are snarky, short, and basically just statements of disagreement. Your position appears to be that trade deficits don't bother you 'cause free makets are a good thing. End of story.
As I feel that this is going nowhere, I'm through.
Actually the trade deficit was fueled by our material success. We raised our standard of living to the point where it was impossible for us to produce ALL the stuff we wanted to AND could acquire. When a people have the ability and desire to buy almost all the stuff the world produces they are going to import a lot of stuff.
The measurement is silly. Americans are voluntarily buying foreign goods. The foreign holders of these US dollars then voluntarily either buy US goods or instead buy US investments like stocks, bonds and real estate.
So why the panic? If you'd like US goods to be more attractive to foreigners (I know I do), you can make it more difficult for Americans to buy foreign goods (don't think that would work) or you can make it easier for Americans to make cheaper, better goods for the foreigners to buy.
I know my preference.
Our manufacturing sector is very strong.
In 2010 we manufactured $1.855 Trillion of goods with 12.5 million workers.
China manufactured 1.922 Trillion of goods with over 100 million workers.
They manufactured slightly more than we did but they needed 8 times the workers to do it.
Imports certainly must be paid for; I was objecting to those who claim that the United States is borrowing money [financing] to do so. It isn't.
The government doesn't import goods, citizens do. And they either pay cash or borrow the money from the local bank and pay it back out of their earnings. The money China lends the U.S. government does not pay the bills for our imports from China. It funds the operation of the government.
They are two separate issues.
I live near the Canadian border. Now, I can buy my groceries in Buffalo, for example, and though I have a personal trade deficit with the supermarket, there is no addition to the national trade deficit. If I decide to cross over to Fort Erie, Ontario and buy my groceries there, I still have a personal trade deficit with the Canadian grocer, but now, interestingly enough, I've added to the national trade deficit.
Canada has financed nothing. I paid for it all.
If the government is truly worried about the trade deficit [it isn't,] it would set about to lower the costs of doing business in the U.S. so as to lower domestic prices. All trade takes place because of prices.
The US is able to pay for imports by exporting goods and services and because the US dollar is the world reserve currency. Billions of dollars have been printed or credited to overseas entities to buy imports. Most of these dollars remain overseas, used by virtually every nation on earth to trade with each other. Isn't it great to be an American?
Unfortunately, this free ride might be coming to an end. There are too many dollars overseas and there are too many foreign nations jealous of America's position and the seignorage it enjoys as a result of owning the world's reserve currency.
The creation of the Euro was, in part, an attempt to horn in on some of the seignorage the US dollar enjoys. The Euro experiment will end in a miserable failure and, ironically, might result in propping up, at least temporarily, the very US dollar it was supposed to replace or at least rival.
I, for one, wish it would. The short-term benefits have been great, but, in the long-term, the dollar's reserve status has allowed our government to indebt us and expose us to the risk of heavy price inflation. Bad moon rising.
There should have been a constitutional amendment to balance the budget. But, who needs the constitution anymore?
That's one thing politicians are good at, squandering.
I agree and, ultimately, it will have been a good thing. In my opinion, gold should be the international reserve currency but, despite the recent hype, I don't expect to see it until we've endured true misery.
Which we may.
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