Saturday, July 30, 2011

3 Things You Need To Know About Trade Deficits

1. Trade deficits are a positive consequence of cost-conscious American consumers and businesses shopping globally for the best value, quality, and price.

2. The trade deficit as most people understand it doesn’t exist.

3. Trade deficits are most often associated with periods of strong U.S. economic growth—not decline.


13 Comments:

At 7/30/2011 8:54 AM, Blogger muirgeo said...

1) American consumers ARE NOT shopping globally. They are buying the products of off shored multinational corporations that have shielded their income from taxes to keep the system going and they have lost their purchasing power in the process through a process of labor arbitrage.

2) Selling parts of your house to buy things some one else made is NOT a sustainable way to grow an economy or the wealth of a nation

3) The only ones who benefit from our trade agreements are the multinational corporations who write them and employ armies of think tank economist to push their propaganda.

My gosh if these trade agreements are so good how do you explain our current economic situation? Doesn’t reality count a little more than your theories and ideology?

 
At 7/30/2011 9:49 AM, Blogger Colin said...

Trade deficit and budget deficit are two different things geo.

 
At 7/30/2011 11:14 AM, Blogger Che is dead said...

The only ones who benefit from our trade agreements are the multinational corporations who write them ... -- muirgeo

Billions of people worldwide would beg to differ.

The reality is that the U.S. has gotten wealthier during this period, not poorer. Yes, some jobs have been moved abroad, but others have been created here. There are more Americans working in the automobile industry today than at any other time in our history, it's just that they are working for foreign firms - Honda in Ohio or BMW in South Carolina - instead of the "Big 3". As Dr, Perry has pointed out many times, U.S. manufacturing is alive and thriving. As a result, U.S. consumers have the benefit of more competitive prices, higher quality and greater choice when it comes to their purchases.

 
At 7/30/2011 11:15 AM, Blogger arbitrage789 said...

The trade deficit is said to be equal to the investment surplus, and so one important question is that of what we’re doing with all the capital we’re importing.

Much of that capital goes to consumption; permitting us to live beyond our means.

Nice gig while it lasts.

 
At 7/30/2011 2:29 PM, Blogger Benjamin said...

I would like to see an explanation of how our trade deficit is financed.

If foreigners buy US assets, that is gerat.

If they lend us the money, then we are building up debts. The performance of debt-laden economies recently is terrifying.

Meanwhile the debt-free nations--or those with huge reserves--such as China and South Korea appear to be flying high. (Japan is an exception, but they are shooting for a zero-inflation monetary policy, and thus have foregone growth in order to have no inflation--a type of self-inflicted wound that some anal central bankers seem to enjoy).

The US is borrowing more and more--O ponder the long-term results of this free trade.

 
At 7/30/2011 3:33 PM, Blogger PeakTrader said...

I'm sure, export-led economies, e.g. China, never suspected they could destroy the U.S. economy by diverting dollars from the U.S. private sector (selling their goods too cheaply) to the U.S. public sector (buying expensive Treasury bonds).

 
At 7/30/2011 7:19 PM, Blogger James said...

We're creating an ownership society in this country, where more Americans than ever will be able to open up their door where they live and say, welcome to my house, welcome to my piece of property. - President George W. Bush, October 2004.

The praise being heaped on the trade deficit here reminds me of George Bush praising the ownership society. The ownership society was financed with subprime loans which caused our downfall. If continued the trade deficit will do the same thing only an order of magnitude worse.

The trade deficit is being financed with both real debt and technology transfer both of which will bite us in the long run.

 
At 7/30/2011 7:42 PM, Blogger Ron H. said...

"The trade deficit is being financed with both real debt and technology transfer both of which will bite us in the long run."

No it won't.

 
At 7/30/2011 8:19 PM, Blogger Craig said...

Forgot this one:

Trade deficits, in and of themselves, are not necessarily bad, but chronic trade deficits are caused by the long-running inflationary policy of the central bank. America's 50 year or more of inflation created the Rust Bowl and has caused most consumer goods manufacturing to move off shore.

It can be argued that America's capital has been usefully employed in other more profitable endeavors, but, still, it would have been nice to let the economy evolve as it would have without government's distortion.

 
At 7/30/2011 8:44 PM, Blogger PeakTrader said...

James says: "The trade deficit is being financed with both real debt and technology transfer both of which will bite us in the long run."

Consumption rises when prices fall.

And when prices fall enough, you'll borrow.

Would you prefer higher prices and less consumption to reduce trade deficits?

One reason the U.S. has trade deficits is American technology commands a high price (i.e. market power).

 
At 7/30/2011 9:21 PM, Blogger PeakTrader said...

Does the U.S. really have trade deficits? - I stated before:

If someone is willing to sell you something at half price, you may buy three units instead of one (given your budget constraint).

So, for example, you'd import three units for $15 and export one unit for $10, creating a $5 trade deficit.

However, you really exchanged your $10 good for three $10 goods, or $30, i.e. a $15 surplus (because you paid $15 for $30 worth of goods).

 
At 7/31/2011 2:41 AM, Blogger juandos said...

"No it won't"...

Hmmm Ron H, you might want to reconsider that comment possibly...

From NewsMax dated Oct. 2003: Clinton Gave China Chips for Nuclear War

 
At 7/31/2011 3:21 PM, Blogger Ron H. said...

"Hmmm Ron H, you might want to reconsider that comment possibly...

From NewsMax dated Oct. 2003: Clinton Gave China Chips for Nuclear War
"

Well, I would think that those who are concerned about the trade deficit would welcome this increase in exports. :-)

I guess I don't see China as that kind of threat. I could be wrong of course, but we are, after all, their best customer. What would be gained by starting a nuclear war?

The chips in question have legitimate peaceful uses, and in any case, I don't think they are make or break items in any military buildup.

 

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