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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?

#621

Post by BirAdam »

analog31 wrote: post #279
tastyfreeze wrote: post #153

Earlier quoted context omitted.

The only policy that will increase savings rate is a stable or depreciating currency. People are incentivized to use an inflationary currency so they can maintain value.

But they can spend it on stocks, with the hope of maintaining or increasing value. Thats savings, right?

In a perpetually inflationary environment it functions that way. Stocks become a universal savings account. Everyone pouring money in raises values whether or not the company being bought has any real value.

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

#622

Post by BirAdam »

trgn wrote: post #309
tastyfreeze wrote: post #282

Earlier quoted context omitted.

Who doesn't love the value of their savings being built 100% on the speculation of the public perception of made up things?

savings are a thermodynamical impossibility. real wealth decays (livestock will die, the roof over your head will leak, the bushel of corn will rot, ...). savings must be invested for it to have future value.

Money was traditionally a way to store value, and not all things decay at a rate that matters. Roman roads still exist. The Parthenon still exists. Roman coins still exist. In any inflationary currency value erodes, and it also encourages the production of less durable goods as time pressure encourages speed of production and not durability.

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

#623

Post by fakedang »

StopDisinfo910 wrote: post #583
alephnerd wrote: post #456

Earlier quoted context omitted.

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 ex…

Of course but the EU thinks it’s a better strategy to engage with China which remains a major partner to move the needle in the right direction rather than burn bridges. There are a lot of tools which could be used to limit the impact of Chinese surproduction and push China towards shoring up its internal market. The US used to do the same and will hopefully be sane again in three years.

Command economies hell-bent on economic dominance are not going to engage. The only way to limit Chinese super production is to either block their goods outright or to subsidize your own to out-price theirs locally.

A lot of people don't understand the CCP mentality clearly. China was once the epicenter of human production, making things the rest of the world desired, from Chinaware to silk to tea. The rest of the world fought wars and crossed oceans to obtain exclusive rights to those goods, while the Chinese dynasties simply sat on their thrones and levied tributes from every farflung nation. The CCP wants to return China to THAT level of dominance, this time with tech, electronics and an addiction to rare raw materials.

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

#624

Post by sorcerer-mar »

aeternum wrote: post #442
sorcerer-mar wrote: post #397

Earlier quoted context omitted.

Outside of a few strategic industries or products, why is this bad?

Because we can't actually make the strategic products. You might have a factory to assemble the highly strategic fighter jet in the US but it is problematic if you are dependent on foreign countries to source or manufacture the multitude of parts.

That was in the premise of the question. Obviously if you don't have a secure supply chain for all the parts of a jet, you don't have a secure supply chain for a jet.

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

#625

Post by oblio »

ggandv wrote: post #618
oblio wrote: post #589

Earlier quoted context omitted.

> Only if the only things you purchase are exclusively domestic. Turns out, the vast majority of Chinese citizens with any means are interested in foreign products (like most people in the world). Are they, though? China has its own huge software stacks, cloud providers, car manufacturers, etc? Is China really starving for anything not made in China, except for luxury goods? To which, I would point at Lexus (the arch…

If China embraces capitalism more tightly that will be a good thing for the world. The problem with China is not its wonderful people or culture, nor its prosperity, the glaring problem with China is Communism and the morality of authoritarian style central planning and the Xi/Putin axis of evil.

What China is not do Communism in any shape or form. It used to be back in Mao's days. Now it's just capitalist authoritarianism.

What you are mistakingly calling "capitalism" that China should adopt is... democracy.

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

#626

Post by bumby »

sorcerer-mar wrote: post #624
aeternum wrote: post #442

Earlier quoted context omitted.

Because we can't actually make the strategic products. You might have a factory to assemble the highly strategic fighter jet in the US but it is problematic if you are dependent on foreign countries to source or manufacture the multitude of parts.

That was in the premise of the question. Obviously if you don't have a secure supply chain for all the parts of a jet, you don't have a secure supply chain for a jet.

It’s probably hard to silo a modern weapon system in the way your question supposes, meaning it may not be a good premise.

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

#627

Post by zaphar »

avidphantasm wrote: post #591
mrtksn wrote: post #504

Earlier quoted context omitted.

For other countries USD is something they have to work for or sell something to acquire it. If they screw up they may end up in crisis being unable to obtain USD. Borrowing in their own currency will be much more limited and borrowing in USD much more costly. USA on the other hand can just print it out of thin air and because the global USD liquidity is huge they can do it for much longer without facing the consequen…

Thank you for elucidating the fact that US “borrows” in its own currency and so as long as we have monetary sovereignty (which we do to a great degree due to USD being the global reserve currency) we have no deficit problems (as long as we keep inflation in check). I implore everyone reading this thread to read up on Modern Monetary Theory (MMT). Stephanie Kelton’s “The Deficit Myth” is a good place to start. Until m…

    as long as we keep inflation in check
That's the trick though isn't it? MMT discourse tends to gloss over or ignore the dangers of runaway inflation and act as if you can borrow all you want with no consequence. But that part that you put in parentheses above is precisely why you can't do that. What you borrow for your budget has to be payed back later. If you just print money to do it because you borrowed more than you could afford then you inflate your currency. If inflation happens too quickly you have serious problems. It's not free money.

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

#628

Post by bumby »

tialaramex wrote: post #401
ijk wrote: post #304

Earlier quoted context omitted.

You joke, but wars are won on logistics. Famously, the US military can deploy a Burger King anywhere on Earth within 24 hours.

No, in order to win a war, it must have a clear objective which can be successful. The US is terrible at this because the objectives of war by a democratic country will be set by politicians, who've never seen an objective which couldn't be made vaguer. Operation Iraqi Freedom had so many sub-objectives key military leadership didn't even agree what the goals all were - and even then some of those goals are nonsense,…

>key military leadership didn't even agree what the goals all were

This seems to imply vague leadership is a very human issue, and not necessarily relegated to just politicians.

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

#629

Post by chii »

jampekka wrote: post #569
starspangled wrote: post #545

Earlier quoted context omitted.

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 t…

USD became the reserve currency in the Bretton Woods, when it was pegged to gold and major currencies were pegged to USD. This was pretty much demanded by US in the Bretton Woods conference. In 1971 US unilaterally scrapped the Bretton Woods and essentially stole the gold reserves. Other countries protested heavily but could not really do much. US then transitioned to the petrodollar system where demand for and value…

The gold reserves wasnt stolen - it is the US's gold that was acquired as a result of WW2. The revocation of the convertability of the US dollar to gold was suspended because it became impossible to honor it due to the increase in the amount of circulating dollars (what people generally call printing - it isn't "printed", it is debt created that produced more currency). And imho, while it seemed like other countries complained, i think this system allowed the world to move off the gold standard - a system which does not allow for flexibility.

And the idea that the US somehow enforces their dollar as being the reserve is moot - it is simply not true. Countries use the US dollar for trade because both sides of the trade believes that the other side cannot "cheat" using this currency, and implicitly believes that the US gov't won't "cheat" on behalf of one side either.

Unfortunately, this trust is being undermined from various sides, including the current US administration (and i have a hard time believing that the trump administration doesnt know this - it seems deliberate).

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

#630

Post by chii »

chabska wrote: post #459
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)

> 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.

And how do you compare metric tonnes of steel produced, with metric tonnes of plastic produced? What about metric tonnes (hours?) of entertainment on films?

The metric to measure value using quantity of goods must use a common denominator unit, otherwise, comparison becomes subjective (one might want to value tangible goods more than intangibles for example).

So making comparison using a price makes a lot of sense.

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