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

libertystreeteconomics.newyorkfed.org

401–410 of 814 posts

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

#401
post #304

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.

No, in order to win a war, it must have a clear objective which can be successful. The US is terrible at this because the objectives of war by a democratic country will be set by politicians, who've never seen an objective which couldn't be made vaguer. Operation Iraqi Freedom had so many sub-objectives key military leadership didn't even agree what the goals all were - and even then some of those goals are nonsense, predicated upon false narratives spread by politicians who wanted a war and needed some sort of justification. Remember the Weapons of Mass Destruction your army was sent to find? Never existed. Terrorists they were sent to eliminate? More were created than had existed previously.

Battles may be won on logistics but you can't win a war without a clear and achievable objective. Corporate had a clear objective. Overlord had a clear objective. Take Desert Shield, to give an example of a US-led operation with clear objectives. If you turn up and the Iraqis all say "Fuck this, I'm off home" freeing Kuwait that's success. If you kill half the Iraqi population but they're still occupying Kuwait when your funding runs out that's failure. That's what you need if you want to win a war, clear objectives.

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

#402

Earlier quoted context omitted.

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 China story will stagnate if a serious effort at helping the bottom half of Chinese does not develop"

So 800,000,000 people raised out of extreme poverty is a lie? Sounds like the bottom half is being well taken care of over there.

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

#403
post #115

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…

The mental gymnastics here to justify the dollar's reserve status and trade deficits as some kind of genius economic strategy are incredible.

First off, this ridiculous notion that the US "gets products and services enabling residents to live beyond their means" is classic ivory tower cope. Yeah, tell that to the average American worker whose real wages have been stagnant for DECADES while housing, healthcare, and education costs have gone full rocket ship. We're not living large - we're drowning in debt while our industrial base gets hollowed out and our cities rot. But sure, keep telling yourself those cheap plastic crap from China is some kind of economic superpower move.

And this nonsense about "imaginary numbers" - spare me. Try telling the Chinese worker breaking their back in a Foxconn factory that their labor is being exchanged for "imaginary" dollars when those same dollars buy real commodities on global markets. The only thing imaginary here is your understanding of how actual wealth transfer works. The Fed's money printer goes BRRR, Wall Street gets bailouts, and the working class gets hollowed-out towns and opioid epidemics.

This whole "trade deficit is fine because we export dollars" nonsense is cope. We get to print monopoly money and trade it for real goods sounds great until you realize it's turned the US into a hollowed-out consumerist wasteland. Our manufacturing base? Gutted. Middle class wages? Stagnant for decades. But hey, at least Wall Street gets to play financialization games with all those dollars floating around overseas, right? The petrodollar cope is particularly hilarious. "Oh but the USD is backed by oil and military power!" Yeah, how's that working out now that the BRICS nations are openly trading in local currencies? Saudi Arabia taking yuan for oil? Russia and China settling trade in rubles and yuan? The entire Global South is laughing at your "reserve currency" while they quietly build alternative financial systems. But sure, keep telling yourself that 1971 was some genius move rather than the beginning of the greatest wealth transfer scheme in human history.

Spare me the "political influence" argument. You know what else gives you influence? Actually MAKING things. The US used to be the arsenal of democracy because we had real industrial capacity. Now we're the ATM of the world. Sure, everyone takes our dollars, but they're laughing at us behind our backs while they build actual industries. China takes our funny money, build world-class infrastructure and tech, while we get... what? A service economy of Uber drivers and baristas? The MMT shills in this thread claiming deficits don't matter are smoking crack. Yeah, it's all fun and games until the music stops. The dollar's dominance isn't some natural law. It's propped up by petrodollar recycling and military bases in 800 countries. But guess what? The BRICS are building alternatives as we speak, and when the world finds a way to ditch the dollar, the inflation tsunami will make the 70s look like a picnic.

And don't even get me started on the "but manufacturing doesn't pay well" cope. Oh yeah, because working at Amazon warehouses or DoorDashing is such a step up from union factory jobs that could support a family on one income? The deindustrialization of America was the greatest wealth transfer from working people to corporate elites in history, dressed up as "free trade." The 1971 Nixon Shock was the original sin that decoupled money from reality. Since then it's been one giant debt orgy where the rich get richer by financial engineering while the country's real productive capacity withers. But sure, keep telling yourself that running perpetual trade deficits while offshoring our industrial base is "sustainable" because we have the money printer.

China now owns our supply chains, controls key industries, and is busy strong arming its way to global dominance. Walmart shelves full of $2 plastic junk don’t make up for the collapse of skilled labor wages. Go tell a factory worker in Ohio that his job loss was worth it because iPhone assembly got outsourced to Foxconn. The "cheap goods" argument is cope for elites who profit from globalization while real wages stagnate for decades.

The average American gets screwed by this system with stagnant wages, unaffordable housing, and a crumbling infrastructure while the elites jet around on private planes bought with Fed-printed junk money. The dollar's reserve status isn't a privilege. It's a curse that's let us paper over our decline with debt instead of making tough choices. Confidence in the dollar is not an infinitely sustainable glitch. When the world finally gets sick of funding our deficits, the reckoning will make 2008 look like a picnic. No fiat currency survives its own abuse. When the reckoning comes, it won't be the bankers and politicians who suffer.

The reality is brutally simple. Decoupling from gold removed all discipline from the system. Politicians could spend without consequence, financiers could gamble with abandon, and the productive economy got outsourced to slave-labor nations while we became a nation of paper-pushers and baristas. Now we're staring down the barrel of $35 trillion in debt, supply chains we don't control, and a currency that's one crisis away from a Venezuela-style collapse. But yeah sure, keep telling yourself everything's fine because some Keynesian academics drew you a pretty graph. The Romans probably had similar debates while their denarius turned to trash and the barbarians gathered at the gates.

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

#404
post #270

Earlier quoted context omitted.

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…

The problem here is with the assumption that the problems can be solved by throwing money at them. Typically they can't.

To a very large degree what schools turn out is based on the students that come in. It's the home and the neighborhood far more than it is the schools themselves. You get a better result if you put students with other students of like ability and motivation. This works pretty well at the university level, but historically it was used to discriminate and thus doesn't get done earlier. And, likewise, we are very focused on equality even when it comes at a detriment to the students. (Once again, legacy of it being used to discriminate.)

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

#405
post #309

Earlier quoted context omitted.

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.

Its value goes up and down, and is as speculative as anything else.

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

#406

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…

It is utterly baffling to me that some Americans see the massive amount of free goods that they get as part of being the reserve currency with trade deficits, and somehow think "hollowed out manufacturing" rather than all that cheap stuff we get.

The rest of those countries that are manufacturing things are far far poorer, and desperate to switch to industry higher up in the value chain, where the US is.

And a half-analysis of the situation, and a halfwit in charge of the country that thinks the trade deficit is like a budget deficit, and the US is throwing away the heart of its economic powerhouse over half understanding of the economy.

It's truly breathtaking. Like watching Brexit on repeat. Just utter economic suicide disguised as strength.

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

#407

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 non-national global reserve suggested by Keynes was to be called Bancor, however Harry Dexter White's plan was pursued instead.

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

#408
post #18
post #5

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

It seems great until those imaginary numbers become worthless overnight. Then you might have a bit of an "oh shit" moment as you realize that the industrial ecosystem required to substitute those imports would take a decade and a half to build even if your money were worth something, which it now isnt. Lots of countries collapse due to overreliance on foreign imports. Argentina never recovered from its peak in the 19…

So then wouldn't the smart play to be to trade those imaginary numbers for real industrial equipment today while we build out factories? The Trumpist plan seems to be just smash the economy and then hope that will somehow force us to build back.

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

#409
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…

> What does this mean really? That is their means.

It means Americans are providing mainly a financial service, by managing the dollar. The value of their currency therefore doesn’t accrue from a real economy, which, by definition, only includes consumer goods and services.

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

#410

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…

It is utterly baffling to me that some Americans see the massive amount of free goods that they get as part of being the reserve currency with trade deficits, and somehow think "hollowed out manufacturing" rather than all that cheap stuff we get. The rest of those countries that are manufacturing things are far far poorer, and desperate to switch to industry higher up in the value chain, where the US is. And a half-a…

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