Why does the U.S. always run a trade deficit? • Hacker News Board

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

#381

Post by bobthepanda » Wed, May 21, 2025, 1:27 AM UTC

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…

I mean, the SDR exists, and currency baskets are not new or unheard of.

USD has mostly been where it is because the alternatives are a lot less appealing:

* CHF - they explicitly would rather not be a strong reserve currency and threaten to print money whenever it starts strengthening

* JPY - they also don't want a strong reserve currency because it would tank their export led economy, plus Japan's debt and economy make the US look very healthy in comparison

* EUR - people remember the Euro crisis, and a lot of the fundamental issues with the currency were just papered over. It wouldn't ake a lot for a new Euro crisis to happen.

* GBP - post Brexit, not that attractive, and not so long ago the whole Liz Truss debacle happened to the currency

* CNY - China flirts with the idea of a reserve currency from time to time but would much rather have the ability to impose strict capitol controls quickly

It's only in the last year or so that USD has started to look very wobbly.

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

#382

Post by JackYoustra » Wed, May 21, 2025, 1:28 AM UTC

neilwilson wrote: post #152

It’s amazing how everybody misses the wood for the trees. Where else is China et al going to sell all the stuff they can produce via their physical overinvestment that was driven by the “export led growth” mantra? There is no untapped source of demand anywhere in the world. There isn’t the income. All they could do is produce less and cause their economies of scale to go into reverse. So instead they sell stuff for a…

> There isn’t the income

There's always the real income, the probably is usually just the price rigidity! Most rich economies have no problem with this (the US and the EU can just adjust interest rates, which are comfortably above zero, to accommodate trade balances). Ironically, China is the biggest culprit here: their interest rates are way, way too high given their inflation and unemployment. This is unfortunate, it'd cause a lot less political disturbance if they lowered it, but as a practical economic matter, not a concern to the US / EU. Drop trade barriers, lower interest rates, and everyone will be richer and have a job.

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

#383

Post by JackYoustra » Wed, May 21, 2025, 1:29 AM UTC

obblekk wrote: post #142

elzbardico wrote: post #129

Why would you not if you don't incur in external debt doing so? The real wealth is not dollars or pounds or whatever, the real wealth is goods and services. Having access to goods and service is what gives you a better living standard, the money is just a way to exchange them and to store value. The US has the privilege of having high international demand for its currency, as it is the default global reserve currency…

> 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

I mean China has cut off rare earths from time to time, and from time to time we don't see crippling shortages but a rather quick supply response.

If you're concerned about short / medium term timeframes, I've yet to see a broad analysis that showed stockpiling (can even do it privately!) being insufficient.

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

#384

Post by JackYoustra » Wed, May 21, 2025, 1:32 AM UTC

roenxi wrote: post #74

> The saving gap perspective tells a contrary story. Investment spending would have been lower if not for the United States being able to borrow from the rest of the world. One can argue that this funding raised the economy’s productive capacity from what it would have been otherwise. This sounds backwards, I suspect he's being a bit sloppy when he says that. To sustain the trade deficit it was necessary to enormousl…

> They could have built a similar amount of production in the US, for example, instead of importing.

They could not. If they could've, why wouldn't they? Companies, all else equal, have an enormous preference to colocate supply with HQ or with demand, and both are in the US.

They could not because labor was so much more expensive that if you can use cheap capital but it takes 5x the labor you should make that trade and the world will be so much richer because the labor would otherwise be completely unused. The only way around this is to liberalize migration.

This is preferable! Liberalizing migration would also let us escape the terrible cost disease we've been experiencing, but instead we liberalized goods only and now people are confused about why goods are so cheap but human-intensive services (restaurants, education, healthcare, etc) are so expensive.

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

#385

Post by JackYoustra » Wed, May 21, 2025, 1:33 AM UTC

legitster wrote: post #273

I think this model is useful on a theoretical level, but I think the fundamental relationship being made is backwards . Domestic savings being weak is an outcome, not an input. Trading partners want to sell us goods for no more than our money. If we have nothing they want to buy, then the result will be a surplus of US currency out there. Parking it in US assets drives the cost of debt way down for the US, and the lo…

You put forth a bit of a broken model, if there's a surplus of currency abroad we should see our currency depreciate, but instead it's quite strong and has been for a very long time, even as we run persistent, large deficits.

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

#386

Post by JackYoustra » Wed, May 21, 2025, 1:36 AM UTC

obblekk wrote: post #146

This is incredibly well written. The oil example is very compelling for import substitution. And the covid example is interesting in showing the savings rate only went up as an offset of gov spending. I'd love to see a follow up on (a) is it important for the US to increase domestic savings and (b) what are the best policies to do so, and why are they the best? I imagine blanket tariffs might actually increase the sa…

(a) There's an argument that people should save more for retirement, but I haven't heard anything more than that about why domestic savings as a whole has to increase. If anything, this is quite a good place to naturally run a deficit! Good rule of law and investment opportunities, as well as future earnings from migrants.

(b) Targeting the fiscal deficit usually works well, especially because it's particularly yawning right now. Forced savings (sing-style CPF) work ok too though, although only Singaporeans wouldn't consider that a tax.

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

#387

Post by JackYoustra » Wed, May 21, 2025, 1:38 AM UTC

corimaith wrote: post #52

nemomarx wrote: post #5

Getting real physical products in exchange for imaginary numbers and services is a good deal? We sell a lot of software?

I really don't think discussion of complex topics should be reductively reduced to snarky xkcd comics that aren't even right. Current account deficit already accounts for both goods & services. From a more formal perspective, deficts aren't neccessairly bad if they're being routed into productive investments at home, as with many developing countries needing to import machinery, but if it's being used to fund consump…

Not really? Migration exists and is basically bottomless for the US, especially among people with a lot of money. To increase net savings just let them all in!

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

#388

Post by tastyfreeze » Wed, May 21, 2025, 1:40 AM UTC

trgn wrote: post #309

tastyfreeze wrote: post #282

Earlier quoted context omitted.

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.

If only there was some material that didn't degrade over time and is hard to produce. Somebody should invent something like that.

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

#389

Post by chabska » Wed, May 21, 2025, 1:42 AM UTC

starspangled wrote: post #369

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…

> It gets massive amounts of products and services enabling the US residents live well beyond their means. What does this mean really? That is their means. For a somewhat topical example, people of Australia get access to cheap medications (in part because they pay to subsidize the cost of them but also because) their government negotiates with pharmaceutical corporations to pay lower prices. This kind of negotiation…

> US manufacturing output is double that of China's on a per-capita basis.

Only on a dollar value basis. And that's heavily skewed on how an item's value is calculated. When you use $50 of parts (all made in China) to assemble a machine that you sold at $500 , $50 of GDP value is attributed to China while $450 of GDP value is attributed to the US. But who did more "manufacturing"?

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

#390

Post by Terr_ » Wed, May 21, 2025, 1:43 AM UTC

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…

Others have mentioned geopolitical priorities like self-sufficiency or wartime economics, but I'd like to focus on the popular-opinion side of things.

It's misguided nostalgia: People recall a time of high wages which co-occurred with certain industries/jobs and strong labor unions. [0]

They (reasonably) want that kind of high earning-power to return... but incorrectly assume (A) the same products/processes are still highly profitable/scalable and (B) that they'll somehow (re-)capture a big slice of any pie without (re-)unionizing.

[0] https://www.epi.org/publication/unions-help-reduce-dispariti...