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

libertystreeteconomics.newyorkfed.org

541–550 of 814 posts

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

#541

Earlier quoted context omitted.

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…

> Growth is trivial to achieve when you are starting from zero. China currently reports the second highest GDP in the world.

> For decades, China's GDP growth towered over the US's.

It's much easier to 100x $1k than to 10x $1m.

This is not to take away from the achievements of the Chinese economy, which are gargantuan. You just can't linearly extrapolate growth rates.

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

#542
post #409

Earlier quoted context omitted.

> 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".

If you're spending $1.9 trillion per year more than you're earning (projected for 2025), accumulating debt, I think it's fair to say you're living well beyond your means.

We're talking about $5600 per inhabitant per year.

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

#543
post #367

Earlier quoted context omitted.

Correct. You can open up an USD account in maybe Zambia and transfer funds to another USD account in Dubai without it ever touching the US financial system.

Is that correct? My understanding is that the SWIFT transfer will go through a US correspondent bank in this case.

[deleted]

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

#544
post #367

Earlier quoted context omitted.

Correct. You can open up an USD account in maybe Zambia and transfer funds to another USD account in Dubai without it ever touching the US financial system.

Is that correct? My understanding is that the SWIFT transfer will go through a US correspondent bank in this case.

Not necessarily. A correspondent bank is simply a bank where the recipient bank has an account in the specified currency. For domestic currencies used only in certain countries, that bank will almost always be in that country. For currencies used globally - not necessarily.

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

#545
post #526

Earlier quoted context omitted.

Many countries control their currency and can print money to pay debts, and can control their fiscal and monetary policies to best gain advantage for themselves. And they do. US can do some things more, bigger, longer, etc., for various reasons. Just like Australia can do more, bigger, longer, etc., than Tonga. I don't really see anything profound being said here. USA might be in some advantageous position now, and i…

The reserve currency status makes all the difference on how much of all this you can do and under what conditions. That's the difference and that's why US had it so good for so long and now is due for such a large correction. Also, US is blessed with huge natural reserves, didn't actually waste it all on drugs and alcohol but did in fact created some of the best institutions in many areas so maybe it wouldn't be that…

It's not a reserve currency because the US decided it is, it's a reserve currency because everybody else decided it is. They decided that because they decided it was in their own best interest to trade in and maintain reserves of USD.

But whatever difference it makes is still just a matter of degrees. Countries keep reserves of and trade in currencies other than USD. Some get more benefit than others from this, and they all work to benefit from what advantage they can take from their own positions within their means to do so.

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

#546

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…

Beyond national security or nostalgia, there's also simply the issue of skill and expertise. Factories are full of people actually working the tools, materials and processes. This is where generational experience forms— people learn a lot when they're actually hands-on. Tim Cook famously said they don't manufacture in China because of the low labour cost, but the quantity of skill (specifically, in the case of Apple, with advanced tooling and materials) [1].

This skill becomes innovation, quality, etc. and before you know it you're not inventing and designing devices for other people to build. You're buying devices designed, invented and built somewhere else.

I would also note that admiring and romanticizing capital over labour IMO is common in the USA than in other countries. I'd guess it's because the rest of the world saw some level of marxist influence that led to the formation of still-existing labour parties in the least, while the USA prosecuted marxism pretty strongly. Beyond how effective this marxist wave actually was in achieving better conditions for laborers, I'd say it at least did generally lead to ideological effects.

The general ideas that there's dignity in all work, that any job should pay a living wage, that money isn't the end all, that laborers deserve recognition, etc— I've noticed all those to be more prevalent outside the USA. Admiring people who make a lot of money with little work, or not working and living off rents, or wealth irrespective of the means to achieve it, etc— I've noticed that moreso in the USA.

So overall, you're right— I'm sure a lot of people in the USA wont actually want those jobs with how little protections labour has and how much people admire earning good money with little effort. Though nonetheless, I also believe there's a sector of the population —perhaps not in HN— that would appreciate those jobs.

[1]: https://observer.com/2025/04/apple-tim-cook-china-strategy/

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

#547
post #467

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…

I suspect in many cases, the "value add" an American firm provides is an intangible. In the pre-tariff omnishambles world, I could buy a more or less equivalent widget for $18 branded with a recognizable American brand, for $12 as a KWJIBO non-brand delivered from Amazon, or for $6 more-or-less manufacturer direct from AliExpress. Amazon added $6 of value by saying "I can get it to you in a timely manner and offer a…

The fact remains that the data we have says the value of US manufacturing is about 50% of that of China. You have your own perceptions of value of course, but that's not how value is actually calculated. The same as people who perceive China's manufacturing to be worthless because they produce cheap flimsy junk is also not an indication of any reality other than their own.

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

#548

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…

I mean, the SDR exists, and currency baskets are not new or unheard of. USD has mostly been where it is because the alternatives are a lot less appealing: * CHF - they explicitly would rather not be a strong reserve currency and threaten to print money whenever it starts strengthening * JPY - they also don't want a strong reserve currency because it would tank their export led economy, plus Japan's debt and economy m…

SDRs exist only on paper. Regular individuals or companies can’t deal in them.

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

#549
post #546

Earlier quoted context omitted.

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…

Beyond national security or nostalgia, there's also simply the issue of skill and expertise. Factories are full of people actually working the tools, materials and processes. This is where generational experience forms— people learn a lot when they're actually hands-on. Tim Cook famously said they don't manufacture in China because of the low labour cost, but the quantity of skill (specifically, in the case of Apple,…

I see it as a kind of misdirection, whether accidental or deliberate: Make the average person blame their malaise on the blend of industries, rather than their lack of bargaining power in the ones that exist.

Like all the nonsense about "bringing back coal" when the number of people working in it has been declining for a solid century for good reasons.

"If only we bring back buggy-whips, I'll be able to support a family like my pappy did."

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

#550

This is incredibly well written. The oil example is very compelling for import substitution. And the covid example is interesting in showing the savings rate only went up as an offset of gov spending. I'd love to see a follow up on (a) is it important for the US to increase domestic savings and (b) what are the best policies to do so, and why are they the best? I imagine blanket tariffs might actually increase the sa…

(a) There's an argument that people should save more for retirement, but I haven't heard anything more than that about why domestic savings as a whole has to increase. If anything, this is quite a good place to naturally run a deficit! Good rule of law and investment opportunities, as well as future earnings from migrants. (b) Targeting the fiscal deficit usually works well, especially because it's particularly yawni…

> only Singaporeans wouldn't consider that a tax

Both forced savings and taxes are legally mandated by the government, but that does not mean that forced savings are taxes. Implementation details matter.

Your money in your own CPF account accumulates interest (at decent/attractive interest rates that generally exceed inflation rates), and is then paid out tax-free to you after retirement.

Additionally CPF funds are managed separately from the government's consolidated revenue. They are administered by the CPF Board and are not used for government expenses in its yearly budget.

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