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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?

#741

Post by watwut »

corimaith wrote: post #157
watwut wrote: post #68

Earlier quoted context omitted.

Well, as it happens, US Gov debt is about to become worst. And that part has only little to do with trade deficit.

Current Account Balance = Trade Balance + Net Income + Net Transfers = Savings - Investment. As trade balance is usually the largest part of the current account, a trade deficit is usually the current account deficit, which means savings is less than investment. The difference between the two, aka the deficit thus must bridged via foreign financing, of which 50% is done by the US Gov via IOUs such as treasuries. So t…

US goverment is about to become much bigger, because of the goverment lowering govermental income (lower taxes + slashing tax collection and enforcement).

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

#742

Post by trgn »

immibis wrote: post #575
trgn wrote: post #309

Earlier quoted context omitted.

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.

An underrated fact. The only savings that doesn't decay is someone else's debt, too.

yes thank you, I paraphrased Soddy, and for him debt was virtual wealth (and not subject to decay).

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

#743

Post by bobthepanda »

sgjohnson wrote: post #548
bobthepanda wrote: post #381

Earlier quoted context omitted.

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.

What is in the SDR is public information, so if you wanted to track them, it's not that hard. https://www.imf.org/external/np/fin/data/rms_sdrv.aspx

Part of the problem with a currency basket is figuring out which currency basket weighting you actually want to use, and maintaining it. USD just exists.

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

#744

Post by fatbird »

NoMoreNicksLeft wrote: post #661
beeflet wrote: post #465

Earlier quoted context omitted.

The net upside is maintaining the market that allows for a trade deficit in the first place. The problem is really that the two aren't directly linked. If you operate at a trade deficit, you don't need to manufacture at home. But if you can't manufacture at home, you can't build war machines efficiently, so you can't be the world police and ensure the market needed to operate at a trade deficit. By defunding the mili…

Unfortunately, at some point the people who are trading products for dollar bills will catch on that there's nothing that they can buy with the dollar bills that are worth the value of the products they sent across the ocean. When that happens, people will stop accepting the dollar bills as payment... but by that point, you've hollowed out your manufacturing to such a degree that you can't ever start it back up. So y…

Soft power is the smallest benefit.

You're leaving out a large part of the equation, which is that countries can trade with each other in the reserve currency, which becomes a neutral medium of exchange with respect to the parties. The value of holding US treasuries currently is that everyone will accept them. By having the world's reserve currency, the US becomes the owner of the world marketplace. It's not just about trade with the US. I export to the US, get USD which I convert to US treasuries, and now I have near frictionless trades with everyone else in the world.

One huge impact of this over the last 50 years is that the world is effectively lending the US liquidity at the lowest possible interest rate, which the US then extends as credit to American businesses, universities, etc., fueling a boom in industry, commerce and academia.

Another big impact is that holders of US treasuries are strongly incentivized to support and protect America, because as America falls, so does the value of those holdings. Before China declares war on the US, it looks at its huge pile of treasuries that will become worthless at the first shot, and says "maybe not". It also allows the US to affect other countries through its monetary policy--another incentive for others to play nice with the US.

It's kind of boggling how little this is understood, how much short and long-term prosperity the US has created for itself by doing this.

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

#745

Post by immibis »

nr378 wrote: post #652
immibis wrote: post #574

Earlier quoted context omitted.

This. A trade deficit is a goods and services surplus. People are sending you shit for free. What's not to like about that? Well, it's unsustainable, so you should have a backup plan, but while it lasts it's pretty good. It's the singular reason the USA is the richest country, and the new regime wants to stop it. In return you have to give them money, but you can just print that. It costs nothing to get. You can also…

> People are sending you shit for free. They aren't sending you stuff for free, they're sending you stuff in exchange for the right to receive future cashflows back from you (i.e. they're sending you stuff in exchange for taking ownership of your financial assets). This isn't necessarily a bad trade for you, but it's far from free.

They're sending you real stuff in exchange for database entries that entitle them to more database entries in the future. Seems like a no-brainer.

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

#746

Post by _1tem »

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…

You misunderstood: balanced trade is about the sum across all countries, not necessarily between any two countries. There can be a trade imbalance between NZ and the US without an overall trade deficit in either country. The point is, that NZ might sell wine and buy fighter jets, but they have to sell enough wine to the rest of the world to pay for the fighter jets, then their trade is balanced. There’s no problem if they have an imbalance of trade with the US as long as it’s balanced overall.

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

#747

Post by jerkstate »

bumby wrote: post #740
jerkstate wrote: post #732

Earlier quoted context omitted.

I know you aren’t the other guy, but it’s a really interesting argument that despite spending more and more money every year to solve this kind of problem, and seeing that the problem is getting worse (quality of life and economic security for uneducated people, in this case), one can still argue that the government is actually efficient and competent. It seems obvious to me that they are not successfully solving thi…

With respect, I asked for data and you came back with “it seems obvious to me…” without citing any real data. I know enough to know people who make feelings-based arguments can’t be persuaded by data-driven discussions.

You can go find the data about the diminishing financial security of this class yourself - your only argument was an appeal to authority, btw.

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

#748

Post by sorcerer-mar »

jerkstate wrote: post #747
bumby wrote: post #740

Earlier quoted context omitted.

With respect, I asked for data and you came back with “it seems obvious to me…” without citing any real data. I know enough to know people who make feelings-based arguments can’t be persuaded by data-driven discussions.

You can go find the data about the diminishing financial security of this class yourself - your only argument was an appeal to authority, btw.

As requested below: which jobs programs have we been shoveling money into with diminishing returns?

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

#749

Post by ppseafield »

JPLeRouzic wrote: post #665
Buttons840 wrote: post #653

Earlier quoted context omitted.

How does the life of a US metallurgist who works part time at a grocery store compare to a Chinese metallurgist who is working 70 hours a week doing metallurgy?

I have interacted with Chinese people in IT for a few months, and they worked 5 days per week. I don't know how many hours they made per day. Another interesting stat is that they live longer on average than US people. And until recently, men retired at 60 and women at 55 yo. https://www.bbc.com/news/articles/cpd9v48yn8ro

Look up 996.

https://www.bbc.com/news/world-asia-china-58381538

https://www.technologyreview.com/2021/11/15/1039650/china-te...

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

#750

Post by JackYoustra »

_t9ow wrote: post #550
JackYoustra wrote: post #386

Earlier quoted context omitted.

(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 m…

Sure sure, my point is stuff like British national insurance and American social security are considered taxes, even though much of the money in expectation goes right back to you in retirement / health spending.

In Singapore, the flows are similar, even though the accounts are broken out individually and the top-ups are explicitly done.

In my view, the key is the government telling you what to spend your money on that gives it the shade of taxation. Whether they do so with labeled accounts or not seems more of an implementation detail.

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