Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

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

libertystreeteconomics.newyorkfed.org

Post reply on HN
Print view View original

191–200 of 814 posts

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

#191

Post by chris_va »

The author seems to gloss over the economy not being a zero sum game.

As an example, since this is HN: the US creates a ton of startups. Any country that creates new businesses is going to see foreign investment, which on paper leads to a trade deficit. Essentially, the US exports businesses to the rest of the world, but that is not tallied in a 19th century model for the trade balance of goods. However, it's arguably a better export that commoditized goods, from a margin standpoint.

Overall these graphs change dramatically based on where the exact geographic boundaries are set and how one defines goods/services/investment. Clearly the US hasn't run out of cash and needed to massively print dollars to cover foreign debt, which would happen very quickly if the system were actually imbalanced.

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

#192

Post by ty6853 »

pstation wrote: post #187
ta20240528 wrote: post #104

Earlier quoted context omitted.

>> 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.

Yet interestingly the USA could put you in jail for wire fraud for 20 years for doing so even if you never interacted with the USA or any US citizens or ever stepped foot on their territory.

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

#193

Post by jasondigitized »

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.

There wasn't an obsession. Trump just weaponized the word deficit to justify tarrifs. Anyone with an IQ over 100 and two minutes to listen to an explainer video on this would quickly understand the con.

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

#194

Post by mitthrowaway2 »

alephnerd wrote: post #125
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…

> 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 That's more a function of subsidizes instead of foreign preference for USD. Chinese median household incomes (Yuan 34,000 or around $4,700) are much too low to spend on most goods at scale [0], and most of the money that co…

China definitely has industrial policy supporting its manufacturing, but the wages argument is begging the question. The USD, as the global reserve currency, is over-valued; if an alternative system were used (eg. the Bancor) and the Yuan allowed to float, then those 34,000 Yuan would buy a lot more and the median US wage would buy less.

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

#195

Post by fatbird »

lotsofpulp wrote: post #37
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…

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.

This. Fundamentally, the USD is the global reserve currency because the US is seen by the rest of the world as the most stable entity able to guarantee the future value of its currency: It's militarily powerful enough to guarantee its independence, and legally predictable as a "rule of law" nation and a stable democracy. If you want to park your assets anywhere, the safest bet is US treasuries. Everything else follows from that.

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

#196

Post by jasondigitized »

ryandrake wrote: post #155
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)

Out of all the many industries out there, I don't understand why we keep glorifying and romanticizing manufacturing and trying to "bring it back." Depending on what you are manufacturing, it can be a very boring, stressful, stinky, physically taxing, or dangerous job. And it really doesn't pay well. It may have paid well 70 years ago, but it doesn't today, and you can't turn time back. A lot of customer service and t…

Because manufacturing means widgets which has physical properties and dummies equate widgets with $$$. Software and services are too abstract and high falootin' and scary.

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

#197

Post by amluto »

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.

In fact, according to US government published numbers, the US runs a goods+services surplus with quite a few countries.

FWIW, I’m not sure I believe the official numbers, or at least I don’t believe that they measure anything useful. When a French customer buys an AMD CPU or Nvidia GPU that was made in Taiwan, the physical object may never touch US soil, but a lot of money flows in. Did we export a good, a service, or neither?

What about when a Spanish user sees an ad funded by a German company and four different US intermediaries are involved in showing that ad? What if the US companies play complex accounting tricks to redirect the income to a subsidiary in a low-tax jurisdiction like Ireland and then effectively materialize some of the dollars in the US by buying shares in the parent company’s stock but mostly just let the nominally Irish dollars sit in US accounts and let US people own very valuable stock?

(Interestingly, IMO none of this requires that USD be a reserve currency. One could easily imagine the same type of economy where gold earned in Europe in deposited in a vault in the US, held by an account that is nominally Irish, and used as investment collateral for various US or foreign investments denominated in XAU. Or it could be cryptocurrency or pretty beads or whatever.)

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

#198

Post by 20after4 »

sorcerer-mar wrote: post #113
lumost wrote: post #103

Earlier quoted context omitted.

There is a common thread in the 1991 gulf conflict that Iraq was going to sell oil in alternative currencies. The entire 1991 conflict is actually quite confusing, the majority western cold war apparatus moved to Saudi Arabia to fight the war. There aren't many reasons for why this was done.

Seems at least equally probable (IMO far more) that was due to the whole invading Kuwait thing. Carter ten years prior: "Let our position be absolutely clear: An attempt by any outside force to gain control of the Persian Gulf region will be regarded as an assault on the vital interests of the United States of America, and such an assault will be repelled by any means necessary, including military force"

It appears that the US mislead¹ Saddam Husein into believing that the we would not intervene in the border dispute with Kuwait. This was enough assurance for him to go ahead with the decision to attack Kuwait. That action was then used by the US as a pretext for the invasion of Iraq.

1. https://adst.org/2016/02/a-bum-rap-for-april-glaspie-saddam-...

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

#199

Post by roenxi »

Attrecomet wrote: post #93
hunglee2 wrote: post #45

Earlier quoted context omitted.

Nixon broke Bretton Woods by coming off the gold standard, leading to massive expansion of the money supply. Lyn Alden has good analysis of this process https://www.lynalden.com/fraying-petrodollar-system/

Imagine having to tell the economy it can only grow as fast as a specific rare metal is mined for money to continue to make sense. The gold standard was a system breaking up by its inherent contradictions, as another poster has phrased it, when Nixon went off it.

The growth rate of the economy wasn't limited by the rate of gold mining - people would just adjust prices relative to gold. And by most accepted measures I'm pretty sure the US economy was growing faster when it was on a gold standard.

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

#200

Post by bumby »

chris_va wrote: post #191

The author seems to gloss over the economy not being a zero sum game. As an example, since this is HN: the US creates a ton of startups. Any country that creates new businesses is going to see foreign investment, which on paper leads to a trade deficit. Essentially, the US exports businesses to the rest of the world, but that is not tallied in a 19th century model for the trade balance of goods. However, it's arguabl…

>However, it's arguably a better export that commoditized goods, from a margin standpoint.

Importantly, this is the same dynamic that causes economies to move away from manufacturing towards service-oriented economies. Capitalism is going to chase higher margins, but there should be guardrails that mitigate the negative externalities of such behavior. Else we are left with an eroded middle class, lack of supply chain resilience, disproportionate costs for sectors that can’t chase geo-arbitrage, weakened national security manufacturing capacity, etc.

Post reply on HN