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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?

#451

Post by Jensson »

neilwilson wrote: post #439
JackYoustra wrote: post #382

Earlier quoted context omitted.

> 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.

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

But they are, since those aren't capitalist democracies China can do things that doesn't benefit its people short term but continues to move investments and industries there long term.

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

#452

Post by erulabs »

dec0dedab0de wrote: post #102

I always thought the plan was we give them pieces of paper for their stuff. Then if we ever needed to we could say those pieces of paper(or bits in a computer) are no longer worth anything unless you're a citizen. But I had a bunch of gift certificates for ChiChis when they went out of business, and I have been jaded to this sort of thing ever since.

You're going a bit far with "no longer worth anything" but indeed, if the entire world holds a particular nation-state's currency, and uses it to exchange goods and pay down debts, then it gives that nation-state tremendous power.

Printing dollars is often considered a tax on dollar-holders: I print dollars, your dollars become less valuable as my new dollars are circulated into the market. Effectively, this means the global reserve currency's nation-state can impose a tax on the world, instead of just on its citizens.

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

#453

Post by NhanH »

jorts wrote: post #448
motorest wrote: post #423

Earlier quoted context omitted.

> 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.

China’s GDP growth is great but they will face a huge pain now that they face an unsustainable population decline. They have more people aged over 52 than younger. I empathize with their youth.

You are claiming that the median age in China is 52 or did I read this wrong? That would be beyond fake news level of statement (for my reading of the meaning)

The current median age of China is about 40, which is not great for their context, but a world apart from 52.

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

#454

Post by erulabs »

> Finally, achieving the goal of a smaller trade deficit will likely be painful

While true, this is economics in a bottle. A world war would also "likely be painful", and one would require factories on-shore and a devalued currency to improve ones odds. In a perfectly peaceful and massive and stable vacuum-world, being the global reserve currency and running a trade deficit and "raising the economy’s productive capacity" is much better than the alternative. Things aren't so simple.

What do you import, and from whom? Are your now unemployed working-class political benign or politically violent? Is your productive capacity capable of producing ships and missiles? Sure ad revenue is great, but can it intercept ICBMs?

If all goods are widgets and we're discussing economics without politics, this is completely spot-on. Alas...

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

#455

Post by fakedang »

alephnerd wrote: post #434
coliveira wrote: post #415

Earlier quoted context omitted.

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. Europ…

Or maybe the EU should subsidize more instead of policing around?

The EU reminds me of the teacher's pet going around the playground, telling all the other children that they should follow the rules. But of course, the pet doesn't have a big stick, so nobody really bothers listening to him/her.

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

#456

Post by alephnerd »

fakedang wrote: post #455
alephnerd wrote: post #434

Earlier quoted context omitted.

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. Europ…

Or maybe the EU should subsidize more instead of policing around? The EU reminds me of the teacher's pet going around the playground, telling all the other children that they should follow the rules. But of course, the pet doesn't have a big stick, so nobody really bothers listening to him/her.

I don't disagree with the EU's laggardness around changing economic tides, but if just about every major economic bloc and country is initiating trade barriers against China to protect their domestic industries, at some point the common denominator is China.

And as I mentioned elsewhere, much of this overproduction would go away were Chinese consumers able to dip into their savings if China's social safety net was expanded and the CCP's Reaganesque opposition to "Welfarism" was toned down.

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

#457

Post by Gustomaximus »

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 is no untapped source of demand anywhere in the world.

What about global growth and development? There are ~billion living in poverty + general low income for even more.

If India and other high population poor countries achieve what China did over the last ~50 years, while China continue to export while transitioning towards a consumption/service economy, there is another engine for global growth. I'm sceptical this will happen, but the potential source of demand is sitting there.

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

#458

Post by nwienert »

fakedang wrote: post #455
alephnerd wrote: post #434

Earlier quoted context omitted.

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. Europ…

Or maybe the EU should subsidize more instead of policing around? The EU reminds me of the teacher's pet going around the playground, telling all the other children that they should follow the rules. But of course, the pet doesn't have a big stick, so nobody really bothers listening to him/her.

Retaliatory measures are a better way to balance things rather than playing a game of command-economy brinksmanship.

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

#459

Post by chabska »

AnIrishDuck wrote: post #411
chabska wrote: post #389

Earlier quoted context omitted.

> 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"?

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)

> What other system of value are you using here? Bottle caps? Nostalgia?

A common proxy is "metric tonnes of steel produced" and "metric tonnes of sulfuric acid produced". For China, these have been going up in-line with their GDP growth, whereas for USA they have flatlined since 1980 despite the increase in manufacturing dollar-value output.

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

#460

Post by owenversteeg »

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…

Because self-sufficiency is a prerequisite of control. “Things” are as essential as food or drinking water or energy in our modern world. Imagine if your country was reliant on another nation for all your food and water: they would have total control over you.

Modern manufacturing is not like the factories of old. Go to China and tour some modern factories: you’ll be surprised. It doesn’t pay well _in the US, in 2025_ because it’s a dying industry. They could easily rise: manufacturing wages are a tiny cost of the sticker price of anything you buy today. Wages have been rising significantly in China for years with little impact to overall product costs. But that’s because they have a competitive manufacturing industry; no US factory owner is going to invest in top talent for a dying factory that has been uncompetitive for a decade.

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