Understanding Trade Deficits

[Clocker]

They aren't what most people think they are.

Trade deficits are not a sign of economic trouble, and trade surpluses are not necessarily a sign of economic health. The last time the U.S. ran a trade surplus with the world was 1975, when our economy was in a shambles. Britain ran a trade deficit from Waterloo to the Great War, a century marking the height of its power, and it grew vastly wealthy.

A good, clear explanation here:

https://www.nationalreview.com/2018/...nomic-trouble/

[tucker6]

If trade deficits and trade surpluses are somewhat meaningless, then why does no one want a deficit on their ledger? For that matter, and again if meaningless, then why are barriers of any kind erected regarding trade?

[Clocker]

Originally Posted by tucker6

If trade deficits and trade surpluses are somewhat meaningless, then why does no one want a deficit on their ledger?

They are not meaningless, they are an indication of the strength of an economy and of international investment. Politicians don't want trade deficits because the word "deficit" has strong negative connotations in other contexts and because they have a simplistic view of the economy. They see only one side of the transaction, Americans are buying more foreign goods than Americans are selling to others. They don't understand that a trade deficit means a capital surplus and that is good for the country. A capital surplus brings in investment and creates American jobs.

For that matter, and again if meaningless, then why are barriers of any kind erected regarding trade?

Trade barriers are based on ignorance and protectionism. Tariffs advocates think that they are stopping "unfair" trade. In reality, they are taxing their own people and increasing the cost of living in their country. Trade barriers such as tariffs or quotas protect jobs and profits in selected industries. Steel tariffs are harmful to the 5 million jobs that use steel as an input, and are harmful to consumers, but they are great for the 150,000 people who work in the steel industry.

Very strong trade economies, such as Hong Kong, have no tariffs or quotas.

Hong Kong is a free port. We pursue a free trade policy and do not maintain barriers on trade. No tariff is charged on import or export of goods. Although licensing is required for the import and export of some goods, this is only to fulfil obligations undertaken by Hong Kong to our trading partners, or to meet public health, safety or internal security needs. The licensing procedures are as simplified as possible in such cases.

https://www.tid.gov.hk/english/trade.../trpolicy.html

[elysiantraveller]

Understanding Trade Deficits

A trade deficit is nothing like a budget deficit. Each year’s federal budget deficit adds to the total debt owed by the federal government. Trade deficits don’t do that, which is one reason why “trade deficit” is not a very useful term. A trade deficit is just a bookkeeping entry, not a debt that has to be paid. Countries don’t trade — people do. Americans are no more harmed by the trade deficit with Germany than you are by your trade deficit with Kroger.

Far from being victimized by such trade, Americans are enriched by it. We get $118 billion in German-made goods in exchange for $54 billion in U.S.-made goods, which leaves $64 billion over to invest in American assets. Do you know who the largest U.S. automobile exporter is? It is BMW Manufacturing, which builds SUVs in Spartanburg, S.C., where it employs more than 9,000 people. Our trade deficit with Germany made that possible — that’s where the money to build the factory came from. Ask the autoworkers in South Carolina whether they think that’s a good tradeoff.

And when talking about the farmers...

U.S. farmers are the best in the world at what they do. The Chinese may talk a good nationalist game, but when Chinese bellies rumble, they are filled with Iowa-grown soybeans. One-third of U.S. soybeans are exported to China, and not because of some Machiavellian trade scheme carried out by Washington. And not because the Chinese are suckers, either. It’s a case of best product, best price.

It was good while it lasted.

President Trump now proposes to spend $12 billion to bail out U.S. farmers hurt by his batty trade war. That figure will grow if the trade war continues.

It took decades of hard work and innovation to make U.S. farmers the best in the world at what they do. It took the U.S. government about two weeks to make them into welfare cases.

Worse, the Trump administration is doing so for no good reason, because it doesn’t really understand trade deficits.

All our farmers really need is for the Trump administration to stop helping them.

[barahona44]

And 20 years from now, long after the tarrif crisis has passed,the farmers will still be getting that federal money.

Stuff's more addictive than crack.

[chadk66]

yes farming is the biggest form of welfare on the planet. they have to have these programs to hide the food stamp costs in.

[Dave Schwartz]

I make this comment from the position of logical, non-expert. If you know what you are speaking about, please feel free to educate me.

All this said, IT SEEMS TO ME...

1. If our economy is strong, we buy lots of foreign goods because our people have more money to spend. This moves us towards a trade deficit.

2. If our economy is weak, we buy less foreign goods because our people don't have money to spend. This moves us towards (what appears to be) a trade surplus.

3. If our currency is strong, we buy lots of foreign goods because our dollars have more value relative to the world. This moves us towards a trade deficit.

Because our goods are more expensive, we export less goods, which also moves us towards a trade deficit.


4. If our currency is weak, we buy less foreign goods because our dollars have less value relative to the world. This moves us towards a trade surplus.

Because our goods are cheaper, we export more goods, which also moves us towards a trade surplus.

5. If our technology lags behind the world in industrial/manufacturing/resources exploration, etc., we import more and export less. This moves us towards a trade deficit.

Conversely, the implementation of new technologies moves us towards a trade surplus.


I am sure that there could easily be 10+ more logical bullet points.

It seems to me that what we need is a BALANCE.

Your opinions?

[Clocker]

From an article co-authored by Larry Kudlow, published about a month before Trump appointed him as Director of the National Economic Council.

One of the ironies of trade protectionism is that tariffs and import quotas are what we do to ourselves in times of peace and what foreign nations do to u‎s with blockades to keep imports from entering our country in times of war.

Or consider that we impose sanctions on U.S. enemies such as North Korea, Russia, and Iran because we want them to feel the economic pain of being deprived of imports.

But now we are imposing sanctions on our own country, putting up tariffs supposedly to make Americans more prosperous. If ever there were a crisis of logic, this is it.

President ‎Donald Trump genuinely believes that his steel and aluminum tariffs will save thousands of blue-collar jobs. And we know from our interactions with him that he truly cares about these workers in Pennsylvania, Ohio, and other Rust Belt states. We do, too, and we don’t want factories to shut down.

But even if tariffs save every one of the 140,000 or so steel jobs in America, they put at risk 5 million jobs in industries that use steel. These producers now have to compete in hyper-competitive international markets using steel that is 20 percent above the world price and aluminum that is 7 to 10 percent higher than the price paid by our foreign rivals.

Steel and aluminum may win in the short term, but steel-and-aluminum users and consumers lose.
...
Trump should also examine the historical record on tariffs. If he does he’ll see they have almost never worked as intended and have almost always delivered an unhappy ending.

https://www.nationalreview.com/2018/...ffs-are-taxes/

[woodtoo]

E.U. imports of soybeans increased by over 280% compared to July 2017 bringing up their share of imports of soybeans up to 37% from 9% last year.

Trump economy firing on all cylinders. He may know something about trade after all.

[elysiantraveller]

Originally Posted by woodtoo

E.U. imports of soybeans increased by over 280% compared to July 2017 bringing up their share of imports of soybeans up to 37% from 9% last year.

Trump economy firing on all cylinders. He may know something about trade after all.

They bought more because they were cheaper due to Chinese tariffs.

If the soybean market was so great we wouldn't be giving a $12 Billion Bailout to them...

You guys really don't get how this stuff works do you?

[classhandicapper]

This is not that complicated.

Tariffs are bad when they are used as a protectionist measure.

Tariffs can be good if you are the deficit country and your goal is only to get the creditor countries to the negotiating table so you can address problems in the existing agreements. The deficit country can inflict more economic pain on the creditor country (especially when it's bigger).

In other words, if you are the deficit country and someone is engaged in protectionist measures, dumping into your market, manipulating their currency, using different regulations, etc...and you want to change that, the only way the country with the advantage is ever going to come to the table is if you inflict pain on them somehow. No one with an advantage will ever give it up out of the goodness of their heart. However, if you use tariffs you have to be willing to take some short term downside in order to inflict greater downside on them for long enough to get them to come to the table. The idea being it's in both side's interests to negotiate at that point.

[classhandicapper]

Originally Posted by Dave Schwartz

I make this comment from the position of logical, non-expert. If you know what you are speaking about, please feel free to educate me.

All this said, IT SEEMS TO ME...

1. If our economy is strong, we buy lots of foreign goods because our people have more money to spend. This moves us towards a trade deficit.

2. If our economy is weak, we buy less foreign goods because our people don't have money to spend. This moves us towards (what appears to be) a trade surplus.

3. If our currency is strong, we buy lots of foreign goods because our dollars have more value relative to the world. This moves us towards a trade deficit.

Because our goods are more expensive, we export less goods, which also moves us towards a trade deficit.


4. If our currency is weak, we buy less foreign goods because our dollars have less value relative to the world. This moves us towards a trade surplus.

Because our goods are cheaper, we export more goods, which also moves us towards a trade surplus.

5. If our technology lags behind the world in industrial/manufacturing/resources exploration, etc., we import more and export less. This moves us towards a trade deficit.

Conversely, the implementation of new technologies moves us towards a trade surplus.


I am sure that there could easily be 10+ more logical bullet points.

It seems to me that what we need is a BALANCE.

Your opinions?

Yes. All of that is true, but ideally those things should be a short term phenomenon or not get too far out of balance.

When we had a gold standard, if the imbalances got too large, the creditor countries would demand gold instead of paper dollars for their goods and services. Then as your gold left the country you had to tighten credit and choke your economy to get back in balance. Now, trade deficits can explode for decades as long as everyone is willing to accept paper and bonds etc... Gold is out of the equation.

However, the idea that trade deficits don't matter is about the dumbest thing I've ever heard in my life.

Countries can go on successfully for decades with trade deficits as long as other countries accept their IOUs, but that doesn't mean it's a good idea or will last forever.

This is the trade.

We get goods and services that depreciate to zero over time (cars, electronics, clothes etc..).

They get dollars that they use to buy our bonds, stocks, real estate, businesses, AND POLITICIANS etc.... You see once you have all those assets (especially bonds), you can start impacting policy.

Obviously one side is getting richer and more powerful at a faster rate than would otherwise be the case and the other side may or may not still be doing fine overall, but some of it's wealth and jobs are moving to the other side. You DEFINITELY want to be a creditor country, just not because you economy is weak, but because you are so competitive. Anyone that argues otherwise does not know what they are talking about or is talking about some short term thing that doesn't matter in the long term.

[Clocker]

Originally Posted by classhandicapper

They get dollars that they use to buy our bonds, stocks, real estate, businesses, AND POLITICIANS etc.... You see once you have all those assets (especially bonds), you can start impacting policy.

Take a look at the current tariff situation and tell us who is buying politicians: the Chinese or the steel barons?

The Chinese are big holders of US bonds. How much have they impacted policy?

[classhandicapper]

Originally Posted by Clocker

Take a look at the current tariff situation and tell us who is buying politicians: the Chinese or the steel barons?

The Chinese are big holders of US bonds. How much have they impacted policy?

Foreigners saber rattle all the time.

When Bill Clinton was president he was quoted as saying (paraphrase because it was a long time ago) "I wish I was as powerful as the bond market". At the time foreigners were saber rattling about selling off US holdings because of one of his policies. Japan used to saber rattle. The Chinese and Russia saber rattle. Even the Saudis saber rattle.

It would be self destructive if done on a very large scale too quickly, but slowly divesting can be done. Russia is dumping US bonds and divesting now because of the issues we are having. That does not help interest rates.

[vegasone]

Trade deficits may or may not be bad, but putting our welfare at risk to a country like China because we want cheeep goods is surely going to be a bad thing.

We lost our incentive to innovate because it was easier to ship our manufacturing overseas. Giving China the resources to build up their military is going to hurt the world in the long run. They eventually will hold us by the nuts and we won’t be able to do much except maybe try to devalue out currency, which may piss off everybody else also.

Giving anyone economic power over us is most likely a bad thing.