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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?

#491

Post by huevosabio »

materielle wrote: post #377
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…

> At the expense of hollowing out domestic industry This doesn’t seem obvious to me. Trade happens because it mutually beneficial. The counter factual to reducing trade isn’t that we would manufacture the equivalent amount of goods here and be just as rich. It’s that we would be poorer. And certain goods would cease to exist, and all of us would have to learn to live with less because it’s simply infeasible to manufa…

> The counter factual to reducing trade isn’t that we would manufacture the equivalent amount of goods here and be just as rich.

> It’s that we would be poorer. And certain goods would cease to exist, and all of us would have to learn to live with less because it’s simply infeasible to manufacture everything here.

This should be in billboards all over the US. I don't get what is so hard to understand.

Globalization made us all richer and gave us the luxury to pursue new technology.

Self-sufficiency points towards subsistence farming.

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

#493

Post by hunglee2 »

grayfaced wrote: post #372
hunglee2 wrote: post #301

Earlier quoted context omitted.

Indeed true - US is 4% of the global population but 25% of the global consumption, if not more. You can see this via the eyeball test - everything is bigger: cars, houses, even the people. US invented 'overproduction' to smear Chinese manufacturing, but did not consider the other side of the coin, which is US 'overconsumption'. Two to tango etc

Wouldn't it be more apt to compare consumption vs production. It looks like US is about 26% of global GDP from a quick google. But I'm also suspect of comparing GDP's across nations that have very different methodologies. Also services are counted there, so it's likely we're exporting services in exchange for manufactured products.

US GDP is grossly inflated by 'services' many of which are non-productive, even deleterious to society. Healthcare is probably the best example of this, I believe it is 10-15% of US economy, yet health outcomes for the people can be extraordinary poor, seeing as majority of bankruptcies in the country are as a result of healthcare costs incurred. We need to find a way to separate 'good' vs 'bad' GDP because the measure is way too crude

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

#494

Post by epistasis »

csomar wrote: post #294
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…

The issue is that the US now wants to have the cake and eat it too. Trump wants the rest of the world to subsidize the US industry. It'll be interesting how this will pan out.

You say "interesting" but as a US resident, I say "terrifying."

Biden showed a great way to subsidize industry and catalyzed the biggest expansion of building factories in generations, in forward-looking sectors that will reduce the cost of energy for all future generations in the US, providing us security and reducing the chance of another inflation spike like that caused by Russia starting wars that threaten the energy supply.

All that nascent industry is at risk of being thrown away for being too "woke" all so that we can send all the fired NCI cancer research to factories for assembling iPhones. From pipetting to tiny screws may be slightly related job skills, but it's capturing the least possible value from a generation of highly trained workers...

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

#495

Post by aylmao »

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)

China's GDP (PPP) is already ~22% higher than the USA's [1]. Arguably, isn't this a better measure of value? PPP measures the real value to the citizens in a nation, and more closely measures actual economic activity.

Say a bottle of wine costs $20 in the USA, and in total one bottle is produced and sold for a total of $20 GDP. France makes 10 bottles at $2 each, for a similar GDP of $20. It's cool that the USA manages to "extract more value" from its smaller wine production, but at the end of the day, France has the stronger economy.

There's more wine to go around, more resilience to the loss of a bottle, arguably this higher production means more export capacity, more employment, more generation of wine expertise, supply chains, etc.

The nominal GDPs might be the same, but the GDP (PPP) of France in this case would be $200 to the USA's $20.

[1]: https://www.cia.gov/the-world-factbook/field/real-gdp-purcha...

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

#496

Post by hunglee2 »

overfeed wrote: post #296
s1artibartfast wrote: post #224

Earlier quoted context omitted.

>There's the risk of this system stop working and that's when the US might have hard times due to being forced to live by its means and have no ability to kickstart its own production when that time comes. I think the risk is greater than that. A concern is not just a regression to the mean, but indebtedness and the future having to pay up for the spending of the past. I think a different analogy would be a joint cre…

> but indebtedness and the future having to pay up for the spending of the past The debt is denominated USD, the US mint could hypothetically print a trillion dollar note and settle the debts. Doing so would wreck trust in the existing system - so it's not just about the debt, but people tend to gloss over how much control the US has over the debt, so the indebtedness (in USD) is a relatively small factor overall.

The US has done this before, more than a few times. In fact, de-globalisation can be traced directly to the GFC, where the US did indeed print billions to bail out US banks and auto, then getting Japan and China to step up and buy UST to recapitalise the economy. PBoC in 2013 said 'no more' and launched BRI

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

#497

Post by hunglee2 »

actionfromafar wrote: post #132
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…

Even more sad that the US chose NOT to invest this surplus, for instance in infrastructure, education and a sensible health system.

sad that you're being downvoted here, very clear that the US investment into society is low in relative terms. In fact, doing so in considered 'socialism' and widely condemned by almost all the political establishment.

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

#498

Post by seanmcdirmid »

aylmao wrote: post #495
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)

China's GDP (PPP) is already ~22% higher than the USA's [1]. Arguably, isn't this a better measure of value? PPP measures the real value to the citizens in a nation, and more closely measures actual economic activity. Say a bottle of wine costs $20 in the USA, and in total one bottle is produced and sold for a total of $20 GDP. France makes 10 bottles at $2 each, for a similar GDP of $20. It's cool that the USA manag…

That bottle of wine is going to be at least 400 RMB in China, so I’m not sure how PPP can be argued here. You would need to focus on things that are less expensive in China than the UsA (services mostly, low end goods and food), but things get more expensive quickly if you go for something nice outside of a restaurant. PPP is oddly calculated given that services in china’s case are mostly what is driving its higher value, and that simply means people are paid less (and increasingly they aren’t, which means PPP will shrink closer to GDP unless their automation investments really pay off).

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

#499

Post by _t9ow »

hunglee2 wrote: post #493
grayfaced wrote: post #372

Earlier quoted context omitted.

Wouldn't it be more apt to compare consumption vs production. It looks like US is about 26% of global GDP from a quick google. But I'm also suspect of comparing GDP's across nations that have very different methodologies. Also services are counted there, so it's likely we're exporting services in exchange for manufactured products.

US GDP is grossly inflated by 'services' many of which are non-productive, even deleterious to society. Healthcare is probably the best example of this, I believe it is 10-15% of US economy, yet health outcomes for the people can be extraordinary poor, seeing as majority of bankruptcies in the country are as a result of healthcare costs incurred. We need to find a way to separate 'good' vs 'bad' GDP because the measu…

Seems like U.S. healthcare spending is 17.5%-19.5% of its GDP: "Overall, health spending was 17.6% of GDP in 2023, similar to pre-pandemic shares (17.5% in 2019) after an uptick in 2020 (19.5%) and 2021 (18.3%)." (https://www.ama-assn.org/about/ama-research/trends-health-ca...)

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

#500

Post by hiddencost »

cryptonector wrote: post #468
Anon1096 wrote: post #264

Earlier quoted context omitted.

You've fallen into the exact zero sum thinking trap that the parent comment mentioned. If investment causes the overall pie to be bigger, then both sides win with no tradeoff. > If debts and profits are going to be paid out eventually that will have to reverse. No it absolutely won't. The US exports financialization and technology services which don't show up on a trade deficit chart but do materially make the US and…

> You've fallen into the exact zero sum thinking trap that the parent comment mentioned. If investment causes the overall pie to be bigger, then both sides win with no tradeoff. The economy is _not_ a zero-sum game. The world economy is _not_ a zero-sum game. Trade very much _is_ a zero-sum game because all the exports of all the countries have to be equal imports in the others -- worldwide imports and exports must n…

? Trade is zero sum over what time with what metric?

https://en.m.wikipedia.org/wiki/Comparative_advantage

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