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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?

#181

Post by triceratops »

ty6853 wrote: post #180
triceratops wrote: post #165

Earlier quoted context omitted.

Fruit vendor: You like these apples? That'll be $2. Buyer: Yeah I want them. But Fort Knox doesn't have enough gold yet, so I don't have the dollar bills right now. Fruit Vendor: No problem. Bring me an IOU from your bank that says you're good for it. (The Invention of Paper Money)

Dollar bills under the circa pre-Nixon gold standard were IOU for gold, there was no need to have enough gold to cover them as it was a fractional reserve.

So why gold? Why not buildings or factories or railroads or ports?

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

#182

Post by koolba »

garciasn wrote: post #171
icedchai wrote: post #109

Earlier quoted context omitted.

There are some good deals out there where you basically get a free phone. However, I've also seen ones adding another $20 - $40 to your monthly bill for the duration of the contract.

I only do the ones where they charge you for the phone but immediately reverse it as part of the contract; so, I'm net zero on phone charges aside from the contract which I'd have anyway.

You’re still paying for it. It’s already baked into the price of the contract.

Simple rule of thumb is to subtract $10/mo/line from your phone bill and the remainder is what you’re paying for the phone subsidy. Which is even worse if you don’t actually milk them for a new device every two years.

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

#183

Post by AtlasBarfed »

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.

- AI will devalue digital services

- Trumpism might be a massive blow to American culture exports (which are also the digital services exports)

- the world is getting less secure, more "interesting" in the chinese proverb sense

- the trade deficit is related to decline in the middle class and manufacturing

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

#184

Post by rcpt »

actionfromafar wrote: post #132
mrtksn wrote: post #115

Earlier quoted context omitted.

US doesn't just get political influence. It gets massive amounts of products and services enabling the US residents live well beyond their means. China for example, sends huge number of electronics and all kind of other consumer goods that Chinese produce by sweating in 12 hours shifts in 6 day work weeks in exchange for imaginary numbers. US is definitely not the victim here. There's the risk of this system stop wor…

Even more sad that the US chose NOT to invest this surplus, for instance in infrastructure, education and a sensible health system.

Car infrastructure and sprawl is hugely expensive and we spend tons on it

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

#185

Post by ty6853 »

triceratops wrote: post #181
ty6853 wrote: post #180

Earlier quoted context omitted.

Dollar bills under the circa pre-Nixon gold standard were IOU for gold, there was no need to have enough gold to cover them as it was a fractional reserve.

So why gold? Why not buildings or factories or railroads or ports?

Not going to be answered in a one liner but the short answer is historically it had about the highest density of value that was relatively easy transport, divide, and the inflationary properties though highly imperfect were less susceptible than that of factories or railroads. Humanity came to it empirically.

Many people have suggested alternatives such as units of energy or baskets of goods but at the end of the day there is no perfect unit, dollars being backed by essentially largely threat of imprisonment if you don't pay your taxes and scarcity of how many the government decides to 'print' is yet another arbitrary choice of backing.

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

#186

Post by XorNot »

elzbardico wrote: post #148
obblekk wrote: post #142

Earlier quoted context omitted.

> 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 m…

Except the US has a realistic protectionist policy it can use: defence production. It's an industry which is diverse, naturally demands locality, but can also provide an export market.

And very much was a core US growth export till very recently.

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

#187

Post by pstation »

ta20240528 wrote: post #104
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…

>> all USD transactions go through US institutions regardless of where those transacting partners are located. Do they? It is my understanding that the (originally London based) Eurodollar market deals in USD without US treasury oversight. As will Hong Kong soon.

Correct.

You can open up an USD account in maybe Zambia and transfer funds to another USD account in Dubai without it ever touching the US financial system.

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

#188

Post by corimaith »

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…

Keynes's argument of the International Clearing Union and the associated Bancor was primairly concerned with the need to manually balance trade balances rather than rely on FX exchanges. That would be achieved via manually setting FX exchange rates to heavily punish surplus countries (which should be happening normally in FX but isn't for various reasons).

The US chose to maintain a reserve USD pegged to gold instead back when they were running a massive trade surplus, but with the collapse of Bretton-Woods the situation in many ways has inverted. In any case, there is increasingly call by many in recent administrations, from Trump's policy advisors to Biden's Katherine Tao to return to the proposals of the ICU. While I don't think Trump's attempt to rebalance trade while still having the US reserve currency will work, I also don't think the Americans are that attached to that prestige to be willing to give it up in order resolve global trade balances and at home. It's not difficult to deal currency freezes with the right friends if you really wish, the real sting of US sanctions has always being barred access to the lucrative US market.

Of course, in the event that the ICU emerges, it would greatly harm the interests of surplus economies like China, Europe, Vietnam, Japan, etc, hence why they largely support the status quo of the US reserve currency rather than changing it, because they've decided that the benefits of surpluses exceeds the benefits of a deficit as a reserve currency.

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

#189

Post by fatbird »

NoMoreNicksLeft wrote: post #135
actionfromafar wrote: post #132

Earlier quoted context omitted.

Even more sad that the US chose NOT to invest this surplus, for instance in infrastructure, education and a sensible health system.

The surplus came with alot of responsibilities, like policing the world. And that had a hefty price tag... nearly $1 trillion annually. Wasn't much left over for public transit and free foot massages. I can entertain arguments that it was a bad bargain.

That $1T isn't an expense. Part of it is operational, meaning keepiong boats and bases running around the world, which earns the US yet more influence and soft power and unearned media. Much of it is acquisition costs, meaning $ going into a US defense tech for research and procurement of the most advanced hardware and maintenance of those industrial bases to do so; that hardware then gets sold to allies, among other things. Saudi Arabie just purchased $142 billion of US hardware.

Playing "world cop" is a net win for America, not a cost it bears.

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

#190

Post by yks »

cvwright wrote: post #162
hunglee2 wrote: post #44

Earlier quoted context omitted.

yes indeed - it has been conflated with the decline of US manufacturing. Reality is the most significant export of the US is the USD itself - that is the trade good which everyone must have (at US insistence)

Problem is that the USD factories don’t provide enough jobs for the US population

Neither will _modern_ manufacturing plants. Regardless, unemployment has not been a big problem in the US so far, and if you say that the recent mass gig/under employment is no longer sufficient for (american dream|middle class lifestyle|male ego), then the sweatshops and coal mines won't be better at all.
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