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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?

#81

Post by kylebenzle »

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

Maybe the military could just start forcing people to buy all US made products instead of just our currency?

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

#82

Post by pdfernhout »

rayiner wrote: post #14
ta1243 wrote: post #10

Earlier quoted context omitted.

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.

The future the USA could have had, sigh: "A brief history of Steve Jobs’ automated factory at NeXT" https://www.cultofmac.com/news/a-brief-history-of-steve-jobs... "Put simply, there was never any necessity for NeXT to have an automated factory. Jobs might have been right that the future of just-in-time manufacturing would involve a heavy dose of automation, but it made no financial sense whatsoever to have a plant staffed with the latest robots for such a low volume business. The problem with NeXT came down to one thing: no-one (relatively speaking) was buying the computers."

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

#83

Post by tiahura »

CyanLite2 wrote: post #71

Because the USA has more money than other countries. People outside the US can't afford to buy our products, but we can afford to buy theirs. This is ideal for many people in the US who want cheap $200 flat screen TVs in every room of their house. This isn't good for unskilled labor in rural parts of America, often in swing states. Manufacturing had always been a place for high school grads to have a decent career. T…

The decimation of the price of unskilled labor via free trade was one of the all time Panglossian failures to consider second and third order effects.

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

#84

Post by downut »

yodsanklai wrote: post #75
CyanLite2 wrote: post #71

Because the USA has more money than other countries. People outside the US can't afford to buy our products, but we can afford to buy theirs. This is ideal for many people in the US who want cheap $200 flat screen TVs in every room of their house. This isn't good for unskilled labor in rural parts of America, often in swing states. Manufacturing had always been a place for high school grads to have a decent career. T…

Unemployment is low in the US though? what type of jobs do high school grads do? and would working in a (let say) doll factory be a better job for them?

They move to where the jobs are. And the small town where they got their schooling hollows out.

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

#85

Post by [deleted] »

CyanLite2 wrote: post #71

Because the USA has more money than other countries. People outside the US can't afford to buy our products, but we can afford to buy theirs. This is ideal for many people in the US who want cheap $200 flat screen TVs in every room of their house. This isn't good for unskilled labor in rural parts of America, often in swing states. Manufacturing had always been a place for high school grads to have a decent career. T…

[deleted]

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

#86

Post by c-linkage »

I've always disliked economics because it never seems to make much sense. The first equation in the article -- the basis on which the entire premise rests -- just feels wrong.

> Spending is either on the consumption of goods and services or investment spending on equipment, structures, and intellectual property products. Income is allocated to either consumption or to saving by households, businesses, and government. In a closed economy, spending equals income—that is, the sum of consumption and saving equals the sum of consumption and investment spending.

> Spending (Consumption + Investment Spending) = Income (Consumption + Saving)

> Because consumption drops out on both sides of the equation, investment spending equals domestic saving in the economy. This makes sense: the funds available to invest in productive projects have to come from domestic savers.

It _doesn't_ make sense. How is consumption on the income side of the equation? And even if that somehow did make sense, who is to say the consumption on the income side is the same as the consumption on the spending side such that they balance out?

Saving is deferred spending, meaning money is set aside temporarily. One might think of this like a "cash queue" where the velocity of money slows down for a while. Is the assumption that all saving takes place in banks where banks can lend it out? If I stuff cash in a mattress (saving), how can that cash be used for investing?

A more realistic version might look like this:

                (fast)
  Income --+--------------+-> Spending --+--> Consumption
     ^     |              |              |
     |     +--> Saving >--+              |
     |          (slow)                   |
     |                                   v
     +---------------------- Investment and Production
This model involves time, but apparently economists only like models that incorporate addition and subtraction.

EDIT: If I'm asking questions, saying I don't understand, and offering a counter-model, doesn't that count as adding to the discussion? If I'm operating under some misunderstanding, there are certainly others who have the same misunderstanding but didn't speak up.

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

#87

Post by aaronbaugher »

kylebenzle wrote: post #72
CyanLite2 wrote: post #71

Because the USA has more money than other countries. People outside the US can't afford to buy our products, but we can afford to buy theirs. This is ideal for many people in the US who want cheap $200 flat screen TVs in every room of their house. This isn't good for unskilled labor in rural parts of America, often in swing states. Manufacturing had always been a place for high school grads to have a decent career. T…

Perfect answer but it's also important WHY the USA, "has more money than other countries." It is because we are the only country that prints money at will and forces the rest of the world to use it at gunpoint. The entire basis of our way of life is essentially printing worthless pieces of paper and digital assets and then literally giving the rest of the world the ultimatum we will kill you if you don't buy and use…

True. It's weird how many of the people who used to know this and protest against it forgot it when the US started using that same power to force their culture onto other countries along with the currency.

As an American, I want my country to get out of this obviously unsustainable position of debt-based hegemon. The tricky part is doing so while staying strong enough that the rest of the world doesn't (quite reasonably) decide to come take a piece out of us to get back at us for the decades of bullying.

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

#88

Post by sorcerer-mar »

codingbot3000 wrote: post #43
hunglee2 wrote: post #35

Using a national currency as the de facto global reserve guarantees a trade deficit for that country. No one else can manufacture USD's, so other countries have to acquire them by shaping their economies to supply goods and services demanded by the US. They can then use these earned dollars to transact with other countries, as the US itself insists they do. For the US, this is a simple trade off - gain massive politi…

Adam Smith already pointed out that a trade deficit is not really interesting, so I do not understand the American obsession about it ;) Also, the often-mentioned US-EU trade deficit is not that big if you count in services. Which I think should be done in the 21st century. Large parts of the US economy are focused on digital high-value services, and they are "exported" worldwide.

The American obsession has to do with its value as a political weapon against the minds of dummies (with votes)

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

#89

Post by sorcerer-mar »

kylebenzle wrote: post #77
lotsofpulp wrote: post #37

Earlier quoted context omitted.

The US isn’t forcing anyone else to use USD. People around the world use USD because they are confident it will help them buy products and services they want in the future.

[flagged]

> We literally murder people and bomb countries that even joke about not buying and using our worthless currency,

Citation needed

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

#90

Post by standardUser »

I wish someone would explain to Trump that decades of low tariffs and trade deficits is what has (had) cemented the US at the center of global trade, with all of the many benefits that comes with. Getting the rest of the world on board with the US-centric economic order has been THE American project of the last 80 years, it's been astoundingly successful, and Trump appears intent on ending it.
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