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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?

#481

Post by ta20240528 »

tcgv wrote: post #343
chollida1 wrote: post #118

Earlier quoted context omitted.

You are correct and the original poster is wrong in this specific regard. Infact one of the most interesting/scary incidents for the US dollar was China selling USD denominated bonds and getting almost the same rate as the US government gets, which essentially means China can compete for USD with US government. The implications of this is that if CHina wants, they now have another level to compete with the US. They c…

China certainly can issue dollar bills more cheaply than the US and it already does in small size, but scaling that up would concentrate currency, rollover and sanctions risk on Beijing while simultaneously reinforcing the dollar system it ultimately wants to escape. The trade-off is therefore asymmetric: the political sting to Washington would be modest and reversible, whereas the balance-sheet, legal and geopolitic…

> Its Western assumption that China wants to escape the USD reserve currency.

Nah, they have a lot of them, they don't want their value to drop.

What the world wants is to escape (at least in the medium term) is the US oversight that forces the USA's enemies to be everyone else's enemies.

From what I can tell, they are going to use (are using) Hong Kong as a ex-USA location to price and trade USD - modeled on the Eurodollar. With a lot of trade-with-China being settled in their e-CNY CBDC.

As a poster alluded to - the big loss for the USA is the insights into pricing and demand.

Nascent, but that's the trend AFAICT.

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

#482

Post by alephnerd »

vkou wrote: post #476
alephnerd wrote: post #209

Earlier quoted context omitted.

Hypothetically yes, but the lack of social safety net means most of that hypothetical purchasing power expansion in China is moot. China has a medical debt problem [0], education pricing problem [1], and private sector capital crunch [2] similar to that of the US. This makes it much more difficult for the median household to spend in China because there is an incentive to keep saving. In isolation an $8,000 EV looks…

> In isolation an $8,000 EV looks cheap to us earning a salary in the West, but that is still 1.7x the median household income (so half of all Chinese households have even less money to spend). You're looking at China the wrong way. A better way to view it is as two countries - a developed urban one, tied to a developing, rural one. The latter is currently bigger than the former, so it drives any median wealth metric…

> You're looking at China the wrong way. A better way to view it is as two countries - a developed urban one, tied to a developing, rural one

This is how I am looking at China, and this is ALL THE MORE reason that development needs to be spread out much more equally.

Urban China isn't that much richer either - median urban household income is CNY 43,000/$6,000 [0] - so on par with Thailand and half that of Malaysia's.

And rural China is in a worse position - CNY 19,600/$2,700 [0]

Ignoring the bottom half of China (urban and rural) is going to set China up for failure long term.

Having well developed cities (in reality a couple megacities that are also 直辖市) but a significantly underdeveloped hinterland and urban underclass will only lead to extended instability.

Furthermore, it isn't that expensive to expand the social safety net in China. The Chinese income tax system is severely regressive and is comparable to the US system, and the provinces and municipalities that generate the majority of growth for China can easily divert portions of their total production to either expanding their own social safety nets or subsidizing those of adjacent provinces.

Just by my back of the napkin math, expanding social services such that it becomes the equivalent of $2,000 per household would automatically add 1% to China's GDP growth rate, and also alleviate the overproduction trade war issue, as that would give significant breathing room to the bottom half of Chinese consumers.

It's just pigheadedness to not divert some amount of spending into education and healthcare.

> On that kind of trajectory, that median divide of wealth is currently where the 60th percentile was a decade ago, and in a decade, will be where the 40th percentile is today

Past trajectory cannot be used to predict future trajectory. Even the IMF forecasts Chinese GDP growth to drop to 3% by the end of this decade. It is much more difficult to lift the bottom 50% of Chinese households in that kind of a macro environment.

It is just plain complacency to ignore this trend.

> Where does the median urbanite in China stand, compared to her Thai or Malaysian counterpart

On par with their Malaysian or Thai urban counterparts based on HDI [1][2], but based on household income, they are roughly at the same median household income of Thailand, and half that of the median Malaysian household, so worse off than their Malaysian or Thai urban counterparts - and let's be honest, there's a reason you bump into plenty of "Cina" migrant workers doing blue collar work in KL, Johor, Klang, or Penang like bus driving or working as the help at Malaysian Chinese owned businesses, just like how there are plenty of white collar Chinese immigrants in Malaysia.

And if we decide to use a subnational lens as you insisted on your post, we can see that the majority of Chinese provinces are much more deprived than their Malaysian or Thai counterparts, which itself highlights the need for the Central and Provincial governments to really concentrate on expanding social welfare.

[0] - https://www.stats.gov.cn/english/PressRelease/202501/t202501...

[1] - http://www.dosm.gov.my/portal-main/release-content/malaysia-...

[2] - https://globaldatalab.org/shdi/table/shdi/CHN+THA/?levels=1+...

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

#483

Post by chii »

rayiner wrote: post #342
ryandrake wrote: post #338

Earlier quoted context omitted.

A lot has happened in 30 years. Developing countries spent 30 years developing and are now capable of doing all this work. And shareholders have required 30 years of profit growth, much of it coming from labor costs. Textile and factory workers in China make, what, ¥15-¥30 per hour, which is around $2-$4/hr. No American is going to take these jobs here, even for 3X the pay. So we can either 1. artificially increase t…

That’s a different argument. The point above was that americans would not accept the quality of life sacrifice involved in manufacturing domestically. But they did quite recently, in a time period that is broadly viewed as a very good one. Now you can argue that the cheaper prices we have today is even better and worth the lost factory work. But that’s a different argument than saying domestic manufacturing isn’t fea…

> ...But they did quite recently, in a time period that is broadly viewed as a very good one.

i dont think the above time period was considered a sacrifice, and the idea that moving the manufacturing back to america would restore that time period is wrong. Because the world has moved on, and productivity has increased so much by now, that it definitely would be a sacrifice if conditions returned back to said time period.

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

#484

Post by chii »

Sohcahtoa82 wrote: post #334
ta1243 wrote: post #283

Earlier quoted context omitted.

Which means 100% of the money goes to the owner. At least now some goes to foreigners who watch stuff on youtube so american workers get a little of the money.

> Which means 100% of the money goes to the owner. As more jobs get automated, this is becoming more and more inevitable anyways. There have been massive strides in computer vision and planning in the past few years. I think in 5-10 years we'll have robots that can handle nearly any manual labor task. In 10-15 years, we could be facing skyrocketing unemployment. We'll either see the collapse of society as the economy…

> In 10-15 years, we could be facing skyrocketing unemployment

The productivity growth from such new technology would induce more consumption, and induce _different_ consumption. These would produce new work opportunities.

UBI is not necessarily the only solution. And to me, it cannot be a solution from which taxation is utilized to fund.

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

#485

Post by seanmcdirmid »

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…

This is also why China isn’t too keen on using the RMB yet in the same way, it is still not freely convertible. The question comes if the USA is insistent on giving up its top spot in the world economy, what currency will fill the void?

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

#487

Post by owenversteeg »

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.

So, first of all, that’s an economics formula: they tend to be extreme simplifications to demonstrate a relationship between variables. Of course, that means they’re often wrong or useless. Sort of like if all physics formulas were “cow diameter=(food-waste)/2” or “car velocity=gas pedal depth-brake pedal depth.” Sometimes economists jokingly call it the “dismal science”; what they don’t mention is that the term came from a paper arguing that slavery was superior to abolition - an argument made with many of the same reasoning errors, oversimplifications and lack of perspective that clouds modern economics. Our modern sciences are not quite as evolved as we would like to believe.

- - -

Now, to your question: this is an oversimplification, but most money that’s not in a mattress somewhere is being lent out (invested.) If I have $500 in a bank account, my bank will turn around and lend my $500 to Bob’s Construction Corp or to Mary for a car loan or whatever. In practice things are a lot more complex, but the portion of money that’s sitting still in a mattress or a vault is fairly small. This means that if I get a dividend, money is moved from one bank account to the next, and the amount of investment doesn’t change.

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

#488

Post by dns_snek »

starspangled wrote: post #474
__m wrote: post #469

Earlier quoted context omitted.

it's called the “exorbitant privilege”

I'm not asking what it's called, I'm asking why that's claimed to be out of their means when it quite clearly is within their means to have this exorbitant privilege, as evidenced by the fact that they have exorbitant privilege.

Because at some unspecified point in the future, the rest of world will stop playing the game where the house always wins.

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

#489

Post by epistasis »

hahajk wrote: post #394
JackYoustra wrote: post #378

Earlier quoted context omitted.

> running a deficit in physical goods traded This is not a disadvantage. By your own admission: we send dollars overseas in exchange for goods. We never have to actually send goods of our own. We effectively get them for the price of printing dollars, so effectively free.

some one really need to explain this in a way I understand, because this sounds very much like "free lunch". Matt Levine explained it as exporting debt ("The US is better than anyone at manufacturing financial instruments"). He also said we get computers in return for entries in a database. This sounds... untenable? too good to be true? a shakey foundation on which to build an economy?

When Apple wants to raise money, it could go issue more shares and sell them on the stock market, and their shares are in high demand because expected future earnings are high.

With the US, the expected future utility of a dollar is very very high, at least far higher than most other currencies.

Combine that with the need for enough currency to be in circulation to support the size of the global economy, and you might call it a "free lunch" or you might call it "something that only an utter fucking idiot would ever risk giving away."

And it's certainly not the foundation of our economy, not at all. The foundation of our economy is large tech stocks, absolutely monstrously high GDP, massive investment in the future via scientific discovery, extremely robust protections against corruption that let entrepreneurs flourish, and a military backing it all. The "free lunch" is the reward for topping the rest of the world in all those areas.

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

#490

Post by seanmcdirmid »

chabska wrote: post #389
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…

> 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"?

The IP is important. Not only did you use $50 in parts, but the design, software, and marketing were done in the states. One critical flaw in MAGA thinking is that these inputs are worthless: the full value of an iPhone comes from China because that’s where it was assembled even if most of the value was actually added in the USA. China wants to be on the other side of the value chain as well and really don’t mind swapping places with the US (and it looks like that will happen long term now due to Trumpism).
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