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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?

#311

Post by marcosdumay »

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.

To explain the sibling that came in accounting jargon, money by its very nature only exists by lending. You can't have your number on your savings account if it wasn't lent to somebody first.

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

#312

Post by fennecbutt »

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…

Plus one thing that was never really mentioned during the tariff bs where many American republicans demonstrated a total lack of understanding of what tariffs are and how they work is:

The fact that, yes, China makes iPhones and America has to import them. However that completely ignores the fact that China is making iPhones for _Apple_ and that whilst I'm sure the Chinese factories make a little profit, Apple's is making much much more on their huge mark up when selling iPhones across the world.

Of course those iPhones are imported directly from China to place of sale, say the UK. But who sees the profit? An American company. _Even though_ those imports would not have counted against America's exports specifically as far as I'm aware.

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

#313

Post by EasyMark »

hunglee2 wrote: post #301
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…

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

I see this tossed around but no one ever seems to point out that EU has similar numbers, which are about half, but still extremely higher than global average; and much more so in the richer countries of the EU (per capita of course)

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

#314

Post by s1artibartfast »

overfeed wrote: post #296
s1artibartfast wrote: post #224

Earlier quoted context omitted.

>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 The debt is denominated USD, the US mint could hypothetically print a trillion dollar note and settle the debts. Doing so would wreck trust in the existing system - so it's not just about the debt, but people tend to gloss over how much control the US has over the debt, so the indebtedness (in USD) is a relatively small factor overall.

Inflating away the debt is a default in all but name, with the same results. If I pay you 50% of what I owe, or 100% reset to half the value.

Both burn creditors and ruin credit.

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

#315

Post by s1artibartfast »

marcosdumay wrote: post #307
s1artibartfast wrote: post #224

Earlier quoted context omitted.

>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?

Nobody can stop the US, they just stop lending under favorable terms, like Argentina.

Nobody wants to make loans to Argentina (or within Argentina) payable in the Argentine Peso. This is the punishment.

The punishment of being credit unworthy is an inability to use credit markets.

This means businesses struggle and the government has its hands tied in dealing with economic crises.

Argentina can't use economic stimulus to correct economic recessions. There is no deep demand for the Argentine peso, so stimulus leads to more inflation rather than increased economic activity

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

#316

Post by jonfw »

ty6853 wrote: post #247
variadix wrote: post #203

Earlier quoted context omitted.

National security is the obvious reason. That includes the ability to switch to a wartime economy, which requires low-tech manufacturing and resource extraction to not be reliant (and thus vulnerable) on imports from potential adversaries. Maintaining a talent pipeline is also important, we’re not going to be able to produce enough high skill machinists quickly enough when we need them because that takes time. Manufa…

The best national security is for it to be in the interest of the counter party to trade with you rather than attack you. Tariffs and protectionism tilt the favor closer to attack. In the extreme, a nation that completely refuses to trade can't offer nor take anything beyond spoils of war.

How is that working for Taiwan?

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

#317

Post by analognoise »

testing22321 wrote: post #241
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…

> Clearly the US hasn't run out of cash and needed to massively print dollars to cover foreign debt Foreign debt is skyrocketing, with interest payments alone already becoming unworkable. Five or ten more years of this spells disaster, it’s totally unsustainable. Either something very drastic has to change, or that money printer will have to go into overdrive.

We could just massively tax the rich?

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

#318

Post by alephnerd »

EasyMark wrote: post #313
hunglee2 wrote: post #301

Earlier quoted context omitted.

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

I see this tossed around but no one ever seems to point out that EU has similar numbers, which are about half, but still extremely higher than global average; and much more so in the richer countries of the EU (per capita of course)

The EU complains about China Shock equally as much as the US [0][1][2][3][4][5][6]

Just becuase Trump burnt bridges with the EU doesn't mean that EU member states will gladly allow job losses across Europe's industrial heartland to a country that is supplying a direct competitor (Russia) that has conducted grey zone warfare within the EU

The EU and it's member states are all working on building domestic capacity, and pushing Chinese manufacturers to manufacture WITHIN the EU [7][8], and further diversifying by making FTAs with ASEAN [9][10], Japan [11], SK [12], India [13], etc.

In essence, nothing has materially changed in European policy with regards to China compared to under the Biden administration.

Chinese overproduction is a global issue now, and most major economies and blocs have enacted barriers and will continue to do so unless China removes it's barriers to imports, subsidizes, and technology transfers.

[0] - https://ecfr.eu/publication/electric-shock-the-chinese-threa...

[1] - https://www.cer.eu/publications/archive/policy-brief/2025/ho...

[2] - https://www.gmfus.org/news/watching-china-europe-may-2025

[3] - https://www.chathamhouse.org/2021/07/eus-unsustainable-china...

[4] - https://www.ecb.europa.eu/press/blog/date/2024/html/ecb.blog...

[5] - https://www.iza.org/publications/dp/13259/hit-by-the-silk-ro...

[6] - https://www.bloomberg.com/news/articles/2025-05-15/eu-econom...

[7] - https://www.economist.com/europe/2024/09/19/near-shoring-is-...

[8] - https://www.bruegel.org/sites/default/files/2024-07/The%20EU...

[9] - https://www.reuters.com/world/china/sweden-propose-eu-member...

[10] - https://www.ft.com/content/bee31826-012d-4bb1-a6eb-d6cc0d4ef...

[11] - https://policy.trade.ec.europa.eu/eu-trade-relationships-cou...

[12] - https://trade.ec.europa.eu/access-to-markets/en/content/eu-s...

[13] - https://apnews.com/article/india-eu-modi-ursula-von-der-leye...

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

#319

Post by palmotea »

ijk wrote: post #304
palmotea wrote: post #208

Earlier quoted context omitted.

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.

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

But not only on logistics. If the "US military can deploy a Burger King anywhere on Earth within 24 hours," but little else, it's fucked. Right now its production base is so addled and weakened that it can't even sustain the wartime production really needed by Ukraine without cleaning out the cupboards. It has only enough missiles to last days in a high intensity conflict, and the lead time for more is years. It definitely can't win in a sustained conflict against China (who has 40-effing% of world manufacturing capacity.

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

#320

Post by nilram »

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 solution is a non-national global reserve, calculated on a basket of national currencies. This was Keynes argument at Bretton Woods, but the US would not have it then, and does not want it now.

But what does the US want now? It's government's actions are making it more difficult for other countries to trust it for the global reserve currency. If it really wanted manufacturing to return to it's shores, there's other ways to accomplish that without rewiring the global economy: carrots, not sticks.

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