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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?

#141

Post by hgomersall »

danans wrote: post #136
elzbardico wrote: post #129

Why would you not if you don't incur in external debt doing so? The real wealth is not dollars or pounds or whatever, the real wealth is goods and services. Having access to goods and service is what gives you a better living standard, the money is just a way to exchange them and to store value. The US has the privilege of having high international demand for its currency, as it is the default global reserve currency…

> The real wealth is not dollars or pounds or whatever, the real wealth is goods and services. You missed one that is arguably more important: ownership of assets that provide security, shelter, and productivity.

Control trumps access trumps ownership. If the asset is on US soil under US regulations it's controlled by the outputs of the US political system. Any failure of those assets to actually benefit the local population is a failure of the US political system.

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

#142

Post by obblekk »

elzbardico wrote: post #129

Why would you not if you don't incur in external debt doing so? The real wealth is not dollars or pounds or whatever, the real wealth is goods and services. Having access to goods and service is what gives you a better living standard, the money is just a way to exchange them and to store value. The US has the privilege of having high international demand for its currency, as it is the default global reserve currency…

> Having access to goods and service is what gives you a better living standard

I think the good faith critique is access to imports can be taken away by the other country if they want. eg. rare earth metals. So being too heavily reliant on imports without the capacity to produce domestically is less long run access

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

#143

Post by ta1243 »

hollerith wrote: post #128
ta1243 wrote: post #111

Earlier quoted context omitted.

So the company owning that factory moves it to Iceland or Ireland or India who don't tax it. Or you could bypass all that and simply tax Apple now, despite their factory being in China.

The German export manufacturers show no great desire to leave Germany -- or at least they didn't till their energy supplies became very expensive in the wake of the Ukrainian invasion.

And apple seems happy staying in California and paying the tiny amount of tax it does.

Assuming no change in costs, how does moving its factories from China to Nebraska change anything, for apple, for the US government or the US citizen?

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

#144

Post by elzbardico »

danans wrote: post #136
elzbardico wrote: post #129

Why would you not if you don't incur in external debt doing so? The real wealth is not dollars or pounds or whatever, the real wealth is goods and services. Having access to goods and service is what gives you a better living standard, the money is just a way to exchange them and to store value. The US has the privilege of having high international demand for its currency, as it is the default global reserve currency…

> The real wealth is not dollars or pounds or whatever, the real wealth is goods and services. You missed one that is arguably more important: ownership of assets that provide security, shelter, and productivity.

In a simplified sense, all assets start their lives as goods, either tradable goods, goods that are used to build more goods, future goods, or things that represent ownership or an interest in any of them.

Land is a bit more complicated. But even land value is conditional in what you can use it for.

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

#145

Post by jtc331 »

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 obsession has at least one interesting question attached: ownership of real property. At the limit, at least, that becomes a genuinely interesting question.

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

#146

Post by obblekk »

This is incredibly well written.

The oil example is very compelling for import substitution. And the covid example is interesting in showing the savings rate only went up as an offset of gov spending.

I'd love to see a follow up on (a) is it important for the US to increase domestic savings and (b) what are the best policies to do so, and why are they the best?

I imagine blanket tariffs might actually increase the savings rate because they increase the cost of importing all goods when the domestic alternatives are either inferior or more expensive. But I'm curious if they are the best way to achieve the savings goal.

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

#147

Post by sunaookami »

jleyank wrote: post #140

Because US-ians want to buy cheap sh*t in Walmart. On the whole, they seem to prefer cheap to durable/costs more. So USD flow to places with cheaper goods and then flow back as investments.

More expensive hasn't meant "more durable/reliable" for years now.

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

#148

Post by elzbardico »

obblekk wrote: post #142
elzbardico wrote: post #129

Why would you not if you don't incur in external debt doing so? The real wealth is not dollars or pounds or whatever, the real wealth is goods and services. Having access to goods and service is what gives you a better living standard, the money is just a way to exchange them and to store value. The US has the privilege of having high international demand for its currency, as it is the default global reserve currency…

> Having access to goods and service is what gives you a better living standard I think the good faith critique is access to imports can be taken away by the other country if they want. eg. rare earth metals. So being too heavily reliant on imports without the capacity to produce domestically is less long run access

Yes. Too much of a good thing, or a good thing at the wrong place or instant of time, ends up not being a good thing.

I would recommend against having sex in a subway station at rush hour, or drinking French Cognac during a job interview, although both are good things.

We can and should discuss how much trade deficit, and the nature of it, but in essence, it is still a good thing if you don't owe to other countries money in a currency you don't control to have this deficit.

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

#149

Post by vel0city »

tzs wrote: post #97
tonyhart7 wrote: post #79

Earlier quoted context omitted.

"If iphones were charged with US labor costs then nobody would buy them" idk, people pay premium for avocado sandwich a lof of cali folks certainly would do that

For most people who aren't very wealthy there is a huge difference between something making their $10 sandwich become a $20 sandwich and something making their $1000 phone become a $2000 phone. Also, people are generally more flexible with sandwiches. If the $10 sandwich I have once a week goes to $20 I might respond be switching to having that sandwich every other week and get something else on the alternate weeks.…

If I'm buying 3 sandwiches a week most weeks of the year (or similar eating out) that's like 150 meals a year. Adding an extra $10 to that is $1,500.

I might get a new phone every 2-3 years. A $1,000 increase in my phone cost is $333-500/yr on average. And honestly if they jump $1,000 I'll probably try even harder to stretch it out another year or more.

A $10 sandwich going to $20 is probably going to be far more impactful to my budget than a phone going up $1,000 in price.

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

#150

Post by dboreham »

ta1243 wrote: post #64
rayiner wrote: post #14

Earlier quoted context omitted.

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.

OK lets assume the entire chain is automated and you don't need to employ anyone. The factory can go anywhere, in China, in France, in California, in North Dakota. What benefit is that to the average American citizen?

You'd need to site it near to the Grand Forks air force base (almost Minnesota) because that's the only runway in state capable of handling 747 cargo flights.
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