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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?

#431

Post by starspangled »

coliveira wrote: post #413
starspangled wrote: post #398

Earlier quoted context omitted.

> Only on a dollar value basis. Uh, yes. > And that's heavily skewed on how an item's value is calculated. An item's value is calculated according to what it is bought and sold for. That's how value is determined. What would you rather it "skew" towards? > 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 attr…

> then clearly that company created an enormous amount of value No, it is more like these companies monopolized access to the high income market and exploited this inefficiency. It is similar to buying a stock for $10 then increasing the bid ask spread to sell it for $100.

> No, it is more like these companies monopolized access to the high income market and exploited this inefficiency. It is similar to buying a stock for $10 then increasing the bid ask spread to sell it for $100.

Okay so we have this scenario you constructed where the Chinese company produced great value without engaging in any IP theft or unbalanced terms of trade or currency manipulation and the American company simply took that and gouged prices with anticompetitive practices. What exactly is your question? The hypothetical American company in your example did not create value, by definition. I don't see how that's particularly useful though.

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

#432

Post by starspangled »

xk_id wrote: post #409
starspangled wrote: post #369

Earlier quoted context omitted.

> 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.

Even if we take what you wrote as fact, that does not answer how it is living beyond their means if their means includes "providing mainly a financial service, by managing the dollar".

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

#433

Post by amilios »

motorest wrote: post #423
AnIrishDuck wrote: post #411

Earlier quoted context omitted.

What other system of value are you using here? Bottle caps? Nostalgia? While the dollar remains the global reserve currency, this is just a wild theory of trade. If the $450 of value was so easy to extract, why wouldn't China simply assemble it in their own country and take the whole pie? (they clearly already do this everywhere they can)

> If the $450 of value was so easy to extract, why wouldn't China simply assemble it in their own country and take the whole pie? If you pay attention, you'll notice that's what China is doing. For decades, China's GDP growth towered over the US's. Around 2015, China's GDP PPP overtook the US's.

but not GDP per capita in purchasing power, in that the US is still far ahead. China's GDP PPP is greater, but with 4 times the population.

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

#434

Post by alephnerd »

coliveira wrote: post #415
alephnerd wrote: post #318

Earlier quoted context omitted.

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…

What about the EU stopping its own subsidies first, before asking this from other countries?

Why not China. China spends 1.73% of it's GDP on subsidizes compared to 0.4-0.6% for France and Germany [0].

At least Germany and France open factories across the EU. Chinese manufacturers did not until the EU began tariffs actions.

Furthermore, Chinese dumping in solar destroyed Germany's original lead in PV manufacturing, and China continues to force foreign manufacturers like VW to partner with Chinese SOEs.

European nations may as well demand the same as well then.

And Chinese dumping is something all nations are fighting - especially other developing countries like Vietnam, Indonesia, India, Brazil, Mexico, etc.

[0] - https://csis-website-prod.s3.amazonaws.com/s3fs-public/publi...

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

#436

Post by mtoner23 »

tiffanyh wrote: post #112

Can someone clear up if "services" are included. I read quite often claims that state if services were included, the US would be in a trade surplus. But in my own rudimentary research, it appears services are in fact included. Can someone confirm.

Yes it includes services and we still run a deficit. Trump's definition though does exclude services which leads to the confusion. In services on its own we run a surplus but it doesn't make up for the larger goods deficit

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

#437

Post by aeternum »

ggm wrote: post #364
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 seems to gloss over the economy not being a zero sum game. The current incumbent of the WH seems to think two things: 1) all games are zero sum games 2) he has authority to sack or functionally wreck any institution he likes without legal recourse. I would expect in the light of 2) it's possible people write as if 1) is being respected.

This is a common soundbite and an unfair simplification. Non zero sum games often still have winners and losers. Also a positive sum trade deal for both sides does not mean it is the best trade deal.

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

#438

Post by AnIrishDuck »

motorest wrote: post #423
AnIrishDuck wrote: post #411

Earlier quoted context omitted.

What other system of value are you using here? Bottle caps? Nostalgia? While the dollar remains the global reserve currency, this is just a wild theory of trade. If the $450 of value was so easy to extract, why wouldn't China simply assemble it in their own country and take the whole pie? (they clearly already do this everywhere they can)

> If the $450 of value was so easy to extract, why wouldn't China simply assemble it in their own country and take the whole pie? If you pay attention, you'll notice that's what China is doing. For decades, China's GDP growth towered over the US's. Around 2015, China's GDP PPP overtook the US's.

Growth is trivial to achieve when you are starting from zero. My footnote very much alludes to this. This is incidentally what the US did to powers like Britain a century and a half ago.

I just find it amusing that in this theory of trade China has found a way to do all the work while the US does nothing and takes all the value. Perhaps all that extra money is not as easy to claim as the OP suggests.

Maybe economies are changing and purely physical goods are becoming less valuable...

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

#439

Post by neilwilson »

JackYoustra wrote: post #382
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,…

There can’t be or China et al wouldn’t be selling their stuff for mere promises.

People don’t swap bananas for apples. They sell them for money, and money is retained for its own benefit. Failing to treat money as its own exchange product is the problem.

The world is not run by interest rates. It’s run by monetary flow, retained in its own right for insurance, status and mercantile purposes.

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

#440

Post by alephnerd »

pacifist wrote: post #402
alephnerd wrote: post #306

Earlier quoted context omitted.

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.

None of what I said detracts from China's success in eradicating extreme poverty.

That said, the majority of Chinese households are still significantly less well off than their peers in other upper middle income countries as stats have shown multiple times.

I don't see why anyone would be so virulently opposed to moving some industrial subsidy spend to expanding healthcare, revamping the current insurance system, providing better quality schools to reduce the cost burden lower tier Chinese households have when spending on education, increasing rural retirement pensions, reforming Chinese income taxes to be less regressive, etc.

Raising household disposable incomes by $2000 a year would help increase GDP growth from 4% to 5% (back of the napkin math) - and that too in a sustainable manner. And this is something that is fairly doable by expanding social services and welfare accessibility. This would also solve much of the overproduction problem that has lead to trade wars globally.

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