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Why does the U.S. always run a trade deficit?

libertystreeteconomics.newyorkfed.org

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Re: Why does the U.S. always run a trade deficit?

#11

Post by corimaith »

cjfd wrote: post #6

Too much consumption versus production. One component is the ever ballooning government debt. Essentially in 'trade deficit' the thing that is not taken into account is one very big export article of the US. Pieces of paper with 'IOU' written on them. The whole Trump trade war is the completely preposterous thing of spending more in the shop than you can afford and then blaming the shop for taking advantage of you. T…

We don't really know why the US savings rate is low, but we do know more explicitly why the savings rates of those "shops", aka surplus countries is abnormally high, with weak social spending, financial repression, currency manipulation etc. Their manufacturing capacities exceed their domestic consumption to absorb, that is to say, they need export markets to stave off unemployment.

Is there not an argument that by the virtue of free capital controls and stronger commitments to free trade, the US is taking the inverse of the exportation of domestic imbalances created by these surplus countries?

Re: Why does the U.S. always run a trade deficit?

#12

Post by corimaith »

rayiner wrote: post #3

> The saving gap framework helps clarify what trade policies can and can’t do. For example, a free-trade agreement encourages exports, and an industrial policy can foster a re-shoring of production to replace imports. Such policies influence the size and composition of cross-border trade, but the difference between imports and exports is only affected if these policies also change the gap between domestic saving and…

https://www.federalreserve.gov/boarddocs/speeches/2005/20050...

The Global Saving Glut hypothesis by Bern Bernanke is an interesting argument about how the glut of demand for US financial assets may have been the major factor in creating the housing bubble in 2008.

Re: Why does the U.S. always run a trade deficit?

#14

Post by rayiner »

ta1243 wrote: post #10
rayiner wrote: post #3

> The saving gap framework helps clarify what trade policies can and can’t do. For example, a free-trade agreement encourages exports, and an industrial policy can foster a re-shoring of production to replace imports. Such policies influence the size and composition of cross-border trade, but the difference between imports and exports is only affected if these policies also change the gap between domestic saving and…

If iphones were charged with US labor costs then nobody would buy them

Or we would have automated assembly faster—the investment in which would’ve been counted in domestic investment offsetting the trade deficit, right? I’m trying to verify my mental model of what’s going on.

Re: Why does the U.S. always run a trade deficit?

#15

Post by corimaith »

ta1243 wrote: post #10
rayiner wrote: post #3

> The saving gap framework helps clarify what trade policies can and can’t do. For example, a free-trade agreement encourages exports, and an industrial policy can foster a re-shoring of production to replace imports. Such policies influence the size and composition of cross-border trade, but the difference between imports and exports is only affected if these policies also change the gap between domestic saving and…

If iphones were charged with US labor costs then nobody would buy them

iPhones are already heavily overpiced considering how other companies regularly release phones with similar specs at lower prices.

Re: Why does the U.S. always run a trade deficit?

#18

Post by pydry »

nemomarx wrote: post #5

Getting real physical products in exchange for imaginary numbers and services is a good deal? We sell a lot of software?

It seems great until those imaginary numbers become worthless overnight.

Then you might have a bit of an "oh shit" moment as you realize that the industrial ecosystem required to substitute those imports would take a decade and a half to build even if your money were worth something, which it now isnt.

Lots of countries collapse due to overreliance on foreign imports. Argentina never recovered from its peak in the 1920s - it just kept bouncing from crisis to crisis. This is looking like an increasingly plausible outcome for the US.

Re: Why does the U.S. always run a trade deficit?

#19

Post by [deleted] »

corimaith wrote: post #11
cjfd wrote: post #6

Too much consumption versus production. One component is the ever ballooning government debt. Essentially in 'trade deficit' the thing that is not taken into account is one very big export article of the US. Pieces of paper with 'IOU' written on them. The whole Trump trade war is the completely preposterous thing of spending more in the shop than you can afford and then blaming the shop for taking advantage of you. T…

We don't really know why the US savings rate is low, but we do know more explicitly why the savings rates of those "shops", aka surplus countries is abnormally high, with weak social spending, financial repression, currency manipulation etc. Their manufacturing capacities exceed their domestic consumption to absorb, that is to say, they need export markets to stave off unemployment. Is there not an argument that by t…

[deleted]

Re: Why does the U.S. always run a trade deficit?

#20

Post by mrweasel »

rayiner wrote: post #3

> The saving gap framework helps clarify what trade policies can and can’t do. For example, a free-trade agreement encourages exports, and an industrial policy can foster a re-shoring of production to replace imports. Such policies influence the size and composition of cross-border trade, but the difference between imports and exports is only affected if these policies also change the gap between domestic saving and…

> I’d also be curious why the EU doesn’t consistently run trade deficits.

Some EU countries probably do, but because they are smaller economies it seems less critical. Combining the EU economies can hide a Spanish deficit within the German surplus fairly easily. e.g. the German surplus are 10 times higher than the Spanish deficit (if I recall correctly).

The EU viewed as a whole, I don't know, maybe due to a very diverse economy, lower overall consumption, lower EU salaries?

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