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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?

#691

Post by seanhunter »

benjaminwootton wrote: post #678
seanhunter wrote: post #649

The whole idea of balanced trade makes no sense at all. Take New Zealand as an example. Last year the major import from NZ to the US was wine. The major export from US to NZ was military hardware. Now. Why should the dollar quantity of wine you buy from someone equal the dollar quantity of military hardware you sell them? There really is no reason at all that the bilateral trade between countries should be balanced a…

Isn’t the bigger problem that the US has a population of 340 million, New Zealand has a population of 5 million?

But that's no excuse. Those goddam kiwis have to buy more fighter jets or we stop buying their wine.

You're right of course.

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

#692

Post by pjmorris »

MaxPock wrote: post #660
IG_Semmelweiss wrote: post #634

Earlier quoted context omitted.

Your statement would be true without nuance. Yes. The mass of US consumers do benefit from penny subsidies of certain foreign product. However, for every penny of foreign subsidy benefitting US consumers buying finished iron or steel goods, a US metallurgist is losing a job somewhere. On strictly numbers, we are better off with foreing-paid subsidies yes, but there are losers, and they take the brunt of the downside.…

You might be losing as an individual but the country gains.

Chris Arnade wrote a book, 'Dignity', traveling and talking with 'back-row' Americans about the individuals who have had the losing end of how the US economy has been run. I also think of James McMurtry's song 'Can't Make It Here Anymore.' Lastly, I'd wager anyone who's on the winning end of the US economy can drive half an hour out of town and find empty storefronts and rundown houses.

If the purpose of the country is to support the 'life, liberty, and the pursuit of happiness' of individuals, there might be a balance that needs to be re-struck.

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

#693

Post by bumby »

jerkstate wrote: post #680
sorcerer-mar wrote: post #662

Earlier quoted context omitted.

If you want a jobs program just say you want a jobs program. Instead of churning out uncompetitive widgets how about we tax the wealthy and employ people fixing our infrastructure?

It’s fallacious that manufacturing can’t be done competitively in the US, it absolutely can, but policy allows business owners to make slightly more profit by offshoring production, so that’s what happens. Regarding fixing the infrastructure, I like that idea too, but the government is pretty incompetent and full of grifters so I don’t really think that’s an efficient way to get money to poor uneducated people - most…

>the government is pretty incompetent and full of grifters

Is this based on actual data or just vibes from your interactions with the DMV, IRS, etc.?

Michael Lewis writes well about this. His perspective is that the govt often shoulders the hard problems that lack a clear path to profitability for private industry. He’s studied govt extensively and seems to have the opposite view.

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

#694

Post by bumby »

sorcerer-mar wrote: post #681
bumby wrote: post #669

Earlier quoted context omitted.

This is a bad faith argument, and I think you know it. There is a wide gulf between “just a few industries” and “everything”. The first is naive and the latter is impractical. My suggestion is we take a targeted stance, where the solution resides in that gulf. And for what it’s worth, your screw argument belies a poor understanding, especially given your example of a jet. Aerospace parts are notoriously expensive bec…

But you just said we effectively can't do it for narrow industries.

I’m saying it’s much harder than your original comment insinuates. That jet in your example has tens of thousands of parts and if you want to protect the entire supply chain, it can’t just be a few companies. Many of those suppliers are also not just supporting jet manufacturers. Eg, a company that makes teflon o-rings for the jet likely makes o-rings for dozens of non-aerospace products. Complex machines are not nice, vertically integrated manufacturing ventures in the modern economy.

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

#695

Post by unionpivo »

OGWhales wrote: post #642
mrtksn wrote: post #526

Earlier quoted context omitted.

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…

Is the USD due for a correction? I would agree the current policies do not help, however I have a hard time seeing any other currency actually replacing the dollar as the world's reserve currency.

If USD stops being global currency, there probably will not be just one that replaces it, but there will be several competing ones (USD still probably being there), for foreseeable future, with countries hedging bets.

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

#696

Post by analognoise »

alexey-salmin wrote: post #516
analognoise wrote: post #317

Earlier quoted context omitted.

We could just massively tax the rich?

Only if you find a way to tax the rich in other countries. Taxing the US rich redistributes money within the country while the problem (or a perceived problem, depending on your stance) is that US bleeds money across the board.

Is the the "rich people will leave" argument? I can't tell.

If they're not willing to participate, I think we should call their bluff. We have helicopters and aircraft carriers, I don't think we couldn't track down a few rich tax evaders.

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

#697

Post by wahern »

greenavocado wrote: post #422
xk_id wrote: post #416

Earlier quoted context omitted.

> The deindustrialization of America was the greatest wealth transfer from working people to corporate elites in history, dressed up as "free trade." You make it sound like this was a conspiracy, and perhaps it did devolve into that eventually, but this system was introduced at the time in order to deal with the stagflationary crisis of the 70s. Only because things had gotten so bad, did Reagan and Thatcher manage to…

The gold standard didn't cause stagflation. Government overreach did. Germany conquered inflation in 1923 by re-pegging to land (the Rentenmark) then gold (the Reichsmark) a few months later. The rchitects of this system KNEW what they were doing. Treasury Secretary Connally's infamous quipped to European ministers: "The dollar is our currency, but your problem." This wasn't economic theory, it was a declaration of f…

Hyperinflation in Germany was deliberate. And Germany didn't just decide on its own to return to the gold standard. European countries drifted away from gold during WWI, and then they all slowly returned to it in the early 1920s. In the case of Germany, its return to the gold standard was required by the Dawes Plan, a plan by the US to ease the effect of reparations on Germany so they'd cease the hyperinflation shenanigans.

Once Europe returned to the gold standard, it saw widespread deflation and consequent unemployment, particularly in the UK and Germany. The effects of deflation caused by a return to the gold standard, and related issues in the US and France which accumulated much of world gold reserves, is widely considered a major cause of both the Great Depression and the rise of fascism. Notably, deflation contributed to a rapid trade deficit increase in Germany.

Some light reading:

https://www.cato.org/blog/world-war-i-gold-great-depression

https://cepr.org/voxeu/columns/did-france-cause-great-depres...

https://www.brookings.edu/articles/germanys-trade-surplus-is...

https://eml.berkeley.edu/~eichengr/fetters_gold_paper.pdf

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

#698

Post by bumby »

sorcerer-mar wrote: post #688
bumby wrote: post #671

Earlier quoted context omitted.

The increase in aircraft manufacturing during that period came at the expense of lost civilian automobile manufacturing. There were practically no civilian American cars made from 1942-1945. Same can be said for other industries. To a certain extent, this belies load shifting rather than increases in overall capacity like your statement may suggest.

In 1940 the US manufactured 3MM cars. In 2024 it manufactured 10MM. Seems like there's industrial capacity to go around?

Sure, if you want to stop making cars to make weapons instead for a long period of time. Have you ever retooled a highly automated assembly plant? I have, and I can tell you it’s not something that can be changed on a whim.

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

#699

Post by sorcerer-mar »

bumby wrote: post #698
sorcerer-mar wrote: post #688

Earlier quoted context omitted.

In 1940 the US manufactured 3MM cars. In 2024 it manufactured 10MM. Seems like there's industrial capacity to go around?

Sure, if you want to stop making cars to make weapons instead for a long period of time. Have you ever retooled a highly automated assembly plant? I have, and I can tell you it’s not something that can be changed on a whim.

Is your contention that we should be churning out wartime levels of war materiel when we're not at war? Like specifically what do you think we should be doing?

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

#700

Post by sorcerer-mar »

bumby wrote: post #694
sorcerer-mar wrote: post #681

Earlier quoted context omitted.

But you just said we effectively can't do it for narrow industries.

I’m saying it’s much harder than your original comment insinuates. That jet in your example has tens of thousands of parts and if you want to protect the entire supply chain, it can’t just be a few companies. Many of those suppliers are also not just supporting jet manufacturers. Eg, a company that makes teflon o-rings for the jet likely makes o-rings for dozens of non-aerospace products. Complex machines are not nic…

I am aware of this, but obviously it's much easier (in that it doesn't outright destroy our way of life) to do it in narrow cases than for everything.
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