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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?

#261

Post by alephnerd »

mitthrowaway2 wrote: post #256
alephnerd wrote: post #209

Earlier quoted context omitted.

Hypothetically yes, but the lack of social safety net means most of that hypothetical purchasing power expansion in China is moot. China has a medical debt problem [0], education pricing problem [1], and private sector capital crunch [2] similar to that of the US. This makes it much more difficult for the median household to spend in China because there is an incentive to keep saving. In isolation an $8,000 EV looks…

What I mean is that if the CNY properly appreciates relative to the US dollar, that CNY60k ($8,000) EV becomes a CNY60k ($16,000) EV. The median Chinese wage goes from CNY 34k ($5,000) to CNY 34k ($10,000). Meanwhile imports of agricultural products and other things into China becomes cheaper, and the cost of food gets lower. Most expenses an average Chinese worker pays might be unaffected given how self-reliant Chin…

> Meanwhile imports of agricultural products and other things into China becomes cheaper, and the cost of food gets lower

Food costs are already dropping in China [0]. That is not what is dampening Chinese spending.

> if the CNY properly appreciates relative to the US dollar, that CNY60k ($8,000) EV becomes a CNY 60k ($16,000) EV. The median Chinese wage goes from CNY 34k ($5,000) to CNY 34k ($10,000).

But a critical surgery will still cost $8k-16k nominal (or $16-32k using your purchasing power multiplier) and education spending by households is rising in nominal, and that is what is dampening consumer spending in the middle and lower quartile.

> Most expenses an average Chinese worker pays might be unaffected given how self-reliant China is, but in theory at least the wage gap between Chinese and US workers would close significantly this way

But the products which a median American consumer purchases doesn't directly overlap with that which the median Chinese consumer purchases (and vice versa). So it's a moot comparison.

[0] - https://www.statista.com/statistics/1446926/china-monthly-fo...

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

#262

Post by foobarian »

s1artibartfast wrote: post #224
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…

>There's the risk of this system stop working and that's when the US might have hard times due to being forced to live by its means and have no ability to kickstart its own production when that time comes. I think the risk is greater than that. A concern is not just a regression to the mean, but indebtedness and the future having to pay up for the spending of the past. I think a different analogy would be a joint cre…

These all seem like side effects of the global reserve currency status. You can't balance the budget until that is given up. Giving up that status would be very painful, so given the choice of pain now or pain later, the current situation seems reasonable to me.

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

#263

Post by jerkstate »

pirate787 wrote: post #223
bumby wrote: post #200

Earlier quoted context omitted.

> 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 chai…

The US is manufacturing more than ever and is the second largest manufacturer in the world after China. The US middle class has actually "eroded" upwards -- our wealthiest population cohort has tripled in the last thirty years.

That’s what the data shows until you peel back the covers and understand that nothing at all could be manufactured here at all without enormous imports of not just raw materials but partially completed goods. US manufacturing output looks large economically because it’s mostly final assembly of imported partially completed goods, but if you looked at the value added (manufacturing output minus imports) it would be much smaller than other countries like China which own entire supply chains.

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

#264

Post by Anon1096 »

treis wrote: post #254
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…

Exporting business ownership when seen on a national level is just another form of debt. You're trading future production for stuff now. The fundamental problem is that the balance of goods flows into the US today. If debts and profits are going to be paid out eventually that will have to reverse. But it's going to be politically impossible for the US to ever send out 5-10% of its GDP in goods. That's the fundamental…

You've fallen into the exact zero sum thinking trap that the parent comment mentioned. If investment causes the overall pie to be bigger, then both sides win with no tradeoff.

> If debts and profits are going to be paid out eventually that will have to reverse.

No it absolutely won't. The US exports financialization and technology services which don't show up on a trade deficit chart but do materially make the US and the world richer.

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

#265

Post by triceratops »

ty6853 wrote: post #250
triceratops wrote: post #233

Earlier quoted context omitted.

That's a problem for any foreign holder of USD who wants to redeem it. So far they've been ok with it. (I didn't mean the government hands out land titles. The holder of USD uses it to buy assets in the country)

I've re-read your statement several times and I'm still not quite getting it. If your point is that railroads or factories are as valid a basis as 'can be used to bail someone out of IRS agents with machine guns shooting their dogs and putting them in a little cage' than I agree with you. Although it brings me back to, you can see how maybe it was simpler historically for people to just settle in a fungible, transpor…

I can see how it was simpler historically, when factories and buildings and patents weren't worth all that much.

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

#266

Post by chessgecko »

brad0 wrote: post #229
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…

There was another reply here earlier that was saying it isn't a trade deficit. I wanted to steelman the parent post: Foreign investment into USA companies reduces the USA trade deficit but it isn't tracked in traditional methods. I've heard that foreign investment in real estate generally isn't counted as each country owns properties equally between the two, so it nets out. I wonder if investments into companies is t…

It is tracked! there are a few different numbers.

by the BEA: https://fred.stlouisfed.org/graph/?g=gX0f

by the treasury: https://ticdata.treasury.gov/resource-center/data-chart-cent...

It's a little hard to figure out how important it is, but there are "good" numbers.

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

#268

Post by hrwvjigegby »

phkahler wrote: post #122

From TFA: Spending (Consumption + Investment Spending) = Income (Consumption + Saving) so they conclude Savings = Investment Spending How does savings become investment spending? Is that through borrowing? Who says borrowing is used for investment? Sure, it's not a great idea to borrow to spend but even corporations sometimes (do stupid things like) borrow to pay dividends which is not investment.

I also did not understand this. It seems that “consumption” has different meanings on either side of the equals sign.

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

#269

Post by chris_va »

4fterd4rk wrote: post #243
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…

[flagged]

(your comment reminds me of Monty Python's argument skit...)

I am merely pointing out that the article, as written, glosses over an interesting an important detail.

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

#270

Post by hluska »

jandrewrogers wrote: post #212
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 US spends $1T on education. It is extremely difficult to justify spending more when the US already spends far more per student than other developed countries. Same with infrastructure and healthcare. Without accountability for where that money went it would be foolish to throw even more money at it. Also, in the US, infrastructure, education, and healthcare is primarily the responsibility of individual States, so…

It’s interesting. Whenever someone says “the US needs to do a better job of funding education” someone always comes out with this exact comment. Yes, the world knows that your country spends more per capita on education than other countries. That’s been made abundantly clear time and time again.

But, if the system is so good and utopian, why do so many children get shot at school? And why do so many American elected officials have such a poor understanding of the US constitution?

Absolutely no signs of trouble, hey?

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