Quote:
Originally Posted by tucker6
If deficits are such a good thing, why doesn't anyone want to trade places with the USA on trade imbalances, such as China? Why aren't the Chinese starting a trade war with us so that they can get into negative trade balance territory? After all, negative is the desired outcome, right.
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Negative is not the desired outcome in and of itself. It depends on the the state of an economy and its composition. You will note that the high trade-deficit countries are largely well developed and relatively wealthy.
We are becoming more and more a service economy, and because of our evolved and successful status, a consumer economy. China is still a developing economy, based much more on production and investment rather than consumption.
China is still a trade surplus country because it is building a more capital intensive economy, and needs to sell more "stuff" in order to build up its internal investment. Because the US is an advanced service and consumer society, it is able to attract more foreign investment, like Toyota and BMW.
China needs to sell more than it buys in order to build its economy. We have the luxury of consuming more than we sell to others because that consumption attracts foreign investment. China is growing in that direction, which is why companies like GM are investing in plant and equipment over there.
We can have a strong economy with a trade deficit because that deficit is off-set by an equal capital surplus. We have consumer spending dollars flowing out of the country, but investment dollars flowing in, boosting the economy and creating jobs.
