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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?

#341

Post by palmotea »

goatlover wrote: post #328
palmotea wrote: post #319

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. But not only on logistics. If the "US military can deploy a Burger King anywhere on Earth within 24 hours," but little else, it's fucked. Right now its production base is so addled and weakened that it can't even sustain the wartime production really needed by Ukraine without cleaning out t…

A sustained conflict with a nuclear power is a no go. The risk of nuclear escalation is too great.

> A sustained conflict with a nuclear power is a no go. The risk of nuclear escalation is too great.

That was the rationale for letting the US military get into this state, but the conflict in Ukraine proved it to be unwise and founded on false assumptions.

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

#342

Post by rayiner »

ryandrake wrote: post #338
rayiner wrote: post #330

Earlier quoted context omitted.

Imports from China were under $20 billion in 1990. At that time, the majority of clothing was still made in the U.S.! My wife’s dad worked as a forklift operator at a Heinz factory in the early 1990s. His job disappeared shortly after NAFTA. The extreme reliance on foreign-made goods happened within the lifetime of millennials. It’s not some inexorable fact about America.

A lot has happened in 30 years. Developing countries spent 30 years developing and are now capable of doing all this work. And shareholders have required 30 years of profit growth, much of it coming from labor costs. Textile and factory workers in China make, what, ¥15-¥30 per hour, which is around $2-$4/hr. No American is going to take these jobs here, even for 3X the pay. So we can either 1. artificially increase t…

That’s a different argument. The point above was that americans would not accept the quality of life sacrifice involved in manufacturing domestically. But they did quite recently, in a time period that is broadly viewed as a very good one.

Now you can argue that the cheaper prices we have today is even better and worth the lost factory work. But that’s a different argument than saying domestic manufacturing isn’t feasible, because it clearly is and we did it until recently.

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

#343

Post by tcgv »

chollida1 wrote: post #118
ta20240528 wrote: post #104

Earlier quoted context omitted.

>> all USD transactions go through US institutions regardless of where those transacting partners are located. Do they? It is my understanding that the (originally London based) Eurodollar market deals in USD without US treasury oversight. As will Hong Kong soon.

You are correct and the original poster is wrong in this specific regard. Infact one of the most interesting/scary incidents for the US dollar was China selling USD denominated bonds and getting almost the same rate as the US government gets, which essentially means China can compete for USD with US government. The implications of this is that if CHina wants, they now have another level to compete with the US. They c…

China certainly can issue dollar bills more cheaply than the US and it already does in small size, but scaling that up would concentrate currency, rollover and sanctions risk on Beijing while simultaneously reinforcing the dollar system it ultimately wants to escape. The trade-off is therefore asymmetric: the political sting to Washington would be modest and reversible, whereas the balance-sheet, legal and geopolitical liabilities for China would linger long after the bonds are sold.

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

#344

Post by ryandrake »

rayiner wrote: post #342
ryandrake wrote: post #338

Earlier quoted context omitted.

A lot has happened in 30 years. Developing countries spent 30 years developing and are now capable of doing all this work. And shareholders have required 30 years of profit growth, much of it coming from labor costs. Textile and factory workers in China make, what, ¥15-¥30 per hour, which is around $2-$4/hr. No American is going to take these jobs here, even for 3X the pay. So we can either 1. artificially increase t…

That’s a different argument. The point above was that americans would not accept the quality of life sacrifice involved in manufacturing domestically. But they did quite recently, in a time period that is broadly viewed as a very good one. Now you can argue that the cheaper prices we have today is even better and worth the lost factory work. But that’s a different argument than saying domestic manufacturing isn’t fea…

I'm saying that Americans will not accept the quality-of-life sacrifice of their labor being competitive with the current price of similar labor in Asia. It doesn't matter what the past competitive landscape looked like, as we're never going back to it without market-distorting tariffs, which bring with them their own problems.

Americans will not work for $2-$4/hr which would be required in order for American-made goods to be as cheap as foreign-made goods.

Americans will not pay 3-4X for all their goods to be made in America by people earning American wages.

I guess, to be complete the only other thing that could happen to cause goods to be manufacturable in America would be 3. for the cost of labor in China (and other places with similar textile and industrial capability) to rise to match that of America.

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

#345

Post by rangestransform »

rcpt wrote: post #184
actionfromafar wrote: post #132

Earlier quoted context omitted.

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

Car infrastructure and sprawl is hugely expensive and we spend tons on it

Even alon levy disagrees that maintaining suburban infrastructure is a huge driver of spending

https://pedestrianobservations.com/2024/10/07/taxes-are-not-...

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

#346

Post by TacticalCoder »

EasyMark wrote: post #313
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

I see this tossed around but no one ever seems to point out that EU has similar numbers, which are about half, but still extremely higher than global average; and much more so in the richer countries of the EU (per capita of course)

[flagged]

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

#347

Post by JumpCrisscross »

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.

> Doing so would wreck trust in the existing system

It would cause immediate hyperinflation. Those notes would go to bondholders who would use it to buy things because holding billions in cash printed by a defaulter isn’t anyone’s cup of tea. So anyone willing to take even absurd amounts of dollars for non-dollar assets is offered absurd amounts. Which means those who didn’t get the helicopter drop find their currency, savings and wages worthless in real terms.

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

#348

Post by JumpCrisscross »

brad0 wrote: post #229
chris_va wrote: post #191

The author seems to gloss over the economy not being a zero sum game. As an example, since this is HN: the US creates a ton of startups. Any country that creates new businesses is going to see foreign investment, which on paper leads to a trade deficit. Essentially, the US exports businesses to the rest of the world, but that is not tallied in a 19th century model for the trade balance of goods. However, it's arguabl…

There was another reply here earlier that was saying it isn't a trade deficit. I wanted to steelman the parent post: Foreign investment into USA companies reduces the USA trade deficit but it isn't tracked in traditional methods. I've heard that foreign investment in real estate generally isn't counted as each country owns properties equally between the two, so it nets out. I wonder if investments into companies is t…

> Foreign investment into USA companies reduces the USA trade deficit

Other way. Foreign investment doesn’t touch the trade account but the capital account. When the company the foreign investor invested in buys stuff, that alters the trade balance depending on what they buy from whom.

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

#349

Post by robocat »

ty6853 wrote: post #192
pstation wrote: post #187

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.

Yet interestingly the USA could put you in jail for wire fraud for 20 years for doing so even if you never interacted with the USA or any US citizens or ever stepped foot on their territory.

The wire fraud laws seem like they are meant to catch everything?

The law seems to get used whenever the US wants to jail someone it doesn't like (but doesn't have a good reason)

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

#350

Post by ijk »

palmotea wrote: post #319
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.

> You joke, but wars are won on logistics. Famously, the US military can deploy a Burger King anywhere on Earth within 24 hours. But not only on logistics. If the "US military can deploy a Burger King anywhere on Earth within 24 hours," but little else, it's fucked. Right now its production base is so addled and weakened that it can't even sustain the wartime production really needed by Ukraine without cleaning out t…

Which was part of the rationale for supporting Ukraine: the best way to build up a manufacturing base is if you have customers, and so supplying munitions to Ukraine was a win/win/win from the military's point of view: Ukraine gets ammo, the US gets to ramp up domestic military production with, effectively, someone else paying the bill. (Granted, some of that was US funds, so the 'someone else' was often another part of the US government, but the point stands in terms of manufacturing capacity.)

While there are shortages in some areas, I'm not aware of any reports of across-the-board procurement issues. In 2023 there was a shortage of 155mm artillery shells (at a production rate of ~8000/month), but no shortage of small arms ammo, APCs, or tactical vehicles [1]. By February 2025 the US was "manufacturing 30,000 155mm rounds per month" and "the Army is now “on a path” to producing 70,000 to 80,000 rounds per month by the end of 2024 or early 2025" [2].

That might not be enough to sustain a conflict with China if it started today, but it does demonstrate that the US is perfectly capable of scaling up domestic arms manufacturing if they choose to invest in it.

[1] https://www.csis.org/analysis/rebuilding-us-inventories-six-...

[2] https://www.nationaldefensemagazine.org/articles/2024/9/11/a...

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