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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?

#301

Post by hunglee2 »

mrtksn wrote: post #115
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…

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…

Indeed true - US is 4% of the global population but 25% of the global consumption, if not more. You can see this via the eyeball test - everything is bigger: cars, houses, even the people. US invented 'overproduction' to smear Chinese manufacturing, but did not consider the other side of the coin, which is US 'overconsumption'. Two to tango etc

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

#302

Post by nitwit005 »

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…

> 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 just buy dollars from the other countries that already bought dollars. A huge amount of trade is dollar denominated, so there's no need to directly sell to the US.

> For the US, this is a simple trade off - gain massive political influence (and market intelligence - all USD transactions go through US institutions regardless of where those transacting partners are located), at the expense of hollowing out domestic industry and running a deficit in physical goods traded.

That's just false. There's no magic mechanism to force transactions to flow through US banks.

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

#303

Post by hunglee2 »

chollida1 wrote: post #118
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.

You are correct and the original poster is wrong in this specific regard. Infact one of the most interesting/scary incidents for the US dollar was China selling USD denominated bonds and getting almost the same rate as the US government gets, which essentially means China can compete for USD with US government. The implications of this is that if CHina wants, they now have another level to compete with the US. They c…

appreciate the education

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

#304

Post by ijk »

palmotea wrote: post #208
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…

No. The US will win the next world war by replying on its advanced capabilities in restaurant work and business consulting.

You joke, but wars are won on logistics. Famously, the US military can deploy a Burger King anywhere on Earth within 24 hours.

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

#305

Post by marcosdumay »

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…

The author is talking about nominal-value market aggregates that always add up to 0, by construction, without alternative.

The article is literally explaining why the US runs a deficit, and economic growth isn't really a part of that explanation.

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

#306

Post by alephnerd »

mitthrowaway2 wrote: post #299
alephnerd wrote: post #292

Earlier quoted context omitted.

Because your point is that the wage gap between the US and Chinese household would close significantly - yet it does not. Even with those multipliers, the wage gap between your median Thai and Malaysian household and your median Chinese household is significant, let alone with an American household. The wage gap cannot be solved until there is a serious expansion in China's social safety net if China wishes to contin…

Thai workers are not paid in the global reserve currency, so that is irrelevant. The wage gap will shrink because USD will come down relative to CNY. I make no argument that Chinese wages will increase in CNY, nor that the gap will close all the way to zero.

My point is a reserve currency doesn't help the median Chinese in any shape or form, nor does the USD being a reserve currency help the median American.

There are benefits to being a reserve currency at the macro-scale, but they are not felt by the vast majority of households, and any attempts at making the CNY a competitive reserve currency would require dramatically reducing currency controls along with increasing the independence of the PBOC from political leadership, and leave the lower tier of Chinese workers open to job loss and outsourcing [0][1][2][3] as low-to-medium complexity industries remain the primary employment generator in Chinese manufacturing.

This is the exact same thing that happened to Thai, Malaysian, and Mexican manufacturing workers during the 2000s when they hit plateaus similar to China today.

Finally, the US's dominant position is the cause of the USD as a reserve currency, not the other way around [4]. Having a reserve currency is orthogonal to having great power status, as can be seen with the rise of China.

A rising tide lifts all ships - the China story will stagnate if a serious effort at helping the bottom half of Chinese does not develop.

[0] - https://www.degruyterbrill.com/document/doi/10.1515/cfer-202...

[1] - https://www.tandfonline.com/doi/abs/10.1080/13602381.2025.24...

[2] - https://sysengi.cjoe.ac.cn/EN/10.12011/SETP2023-0562

[3] - https://www.nature.com/articles/s41599-024-03797-6

[4] - https://www.ussc.edu.au/the-reserve-currency-myth-the-us-dol...

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

#307

Post by marcosdumay »

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…

> but indebtedness and the future having to pay up for the spending of the past

Who do you expect will hold the US into its indebtedness?

The entire world is powerless to stop Argentina, why do you think the US will be more impacted?

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

#308

Post by hollerith »

ta1243 wrote: post #285
hollerith wrote: post #228

Earlier quoted context omitted.

Apparently the US can sustain a trade deficit with the rest of the world, but certainly this ability to sustain one is not unlimited, so lowering the trade deficit tends to help Americans by making it more likely that the US economy can continue to import things (including some things are are available only outside the US, e.g., fruits that only grow in tropical climate).

How will apple being in Nebraska make any difference to Joe Bloggs from Oklahoma importing something?

If the trade deficit becomes or continues to be unsustainably large, that would devalue the dollar so that Joe's dollar buy less imports than it does now.

There are hints of a strange energy to your questions, which does not bother me, but I am curious whether you feel hostile to me, e.g., because you inferred from my answers that I probably support a political faction that you regard as the enemy.

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

#309

Post by trgn »

tastyfreeze wrote: post #282
analog31 wrote: post #279

Earlier quoted context omitted.

But they can spend it on stocks, with the hope of maintaining or increasing value. Thats savings, right?

Who doesn't love the value of their savings being built 100% on the speculation of the public perception of made up things?

savings are a thermodynamical impossibility. real wealth decays (livestock will die, the roof over your head will leak, the bushel of corn will rot, ...). savings must be invested for it to have future value.
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