Trade Wars versus Trade Deficits

Discussion in 'Economics & Trade' started by kazenatsu, Jan 31, 2019.

  1. kazenatsu

    kazenatsu Well-Known Member Donor

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    Is more trade worth it if that trade is also accompanied by trade deficits?

    Suppose for example there is 100 million worth of trade between country A and country B, but country A is also having a 50 million trade deficit as a result of this trade.

    Could it be better, in some cases, to just not have that trade entirely if there are chronic long-term trade deficits? That is, if country B keeps selling more exports to country A than the value of the exports country A exports to B.
     
  2. Reiver

    Reiver Well-Known Member

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    This is meaningless. Trade wars necessarily demolish well-being (except in the specific case of infant industries). Whinging about trade deficits is just mercantilism.
     
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  3. kazenatsu

    kazenatsu Well-Known Member Donor

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    That's not what the world's one-time second richest man and acclaimed financial genius Warren Buffet believes.
     
  4. Reiver

    Reiver Well-Known Member

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    Is that an argument? Crikey! Learn some economics and then get back to me. There is absolutely nothing wrong with a deficit. Mercantilism is bobbins. There can be problems with a trading imbalance (given exchange rate corrections can be destabilising). Want to whine about that? Tell Americans to consume less!
     
  5. james M

    james M Well-Known Member

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    here are your ABC's: trade deficits are self-correcting. The more dollars China gets from exporting to us the more it has to buy from us. If they dont want to buy from us then they would have no reason to trade with us. Do you get it now??
     
  6. kazenatsu

    kazenatsu Well-Known Member Donor

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    The issue is, instead of taking those dollars and buying from us, they take those dollars and own us.
    They start buying up capital and government debt.
    That means year after year, we will have to keep sending them money and not really get anything in return.

    There's also of course the danger that they could take all that government debt they own, and when it becomes due demand it all be repaid (i.e. choose not to take that money and plough it back in to buy Treasury bonds again).
    This could potentially be used a financial weapon to ruin the credit of the U.S. and force the country into default, or at least force them into paying much higher interest payments, a subject that's been warned about in many economics circles.

    In terms of capital, a lot of Chinese investors are buying up U.S. real estate.
    That means when people pay rent, or when they're making mortgage payments to the bank, that money is going to China instead of the U.S.

    Which again means the U.S. is going to have to export to China in the future, not really being able to import anything back in return, because the China owns part of the U.S., basically.
    Sort of like if you decided to sell the family farm, and the new owner said you had to keep sending them 100 bushels of wheat every year to stay on it.

    If you think trade deficits don't matter, you'd have to be as braindead as a person who thinks borrowing lots of "free money" from a credit card doesn't matter.
     
    Last edited: Feb 1, 2019
  7. Reiver

    Reiver Well-Known Member

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    Good to see the same level folk grunting at each other! They won't learn anything mind you...

    This is neatly advertised by the cretinous "if you think trade deficits don't matter, you'd have to be as braindead as a person" cobblers. Its like opportunity costs, and therefore comparative advantage, doesn't exist!
     
    Last edited: Feb 1, 2019
  8. james M

    james M Well-Known Member

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    wrong of course, the capital and govt debt become more and more worthless if we don't produce real wealth, and the more they try to buy the more we raise the price ripping them off still further..
     
  9. james M

    james M Well-Known Member

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    dump it all on the market at once it becomes worthless. You're easy!!
     
  10. james M

    james M Well-Known Member

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    suppose they bought it all and we produced nothing competitive on world market. The RE would be worth nothing. It would be like we got the exports for free
     
  11. james M

    james M Well-Known Member

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    nice to get a comment, from the peanut gallery, from the non-market, market socialist, libcommie statist!!
     
  12. james M

    james M Well-Known Member

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    it doesn't matter as long as you can easily default. We can in effect default by raising our prices all we want. THen the Chinese have to buy or use the money to stuff their pillows. Do you understand?
     
  13. kazenatsu

    kazenatsu Well-Known Member Donor

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    Reiver, comparative advantage is the other side of the coin. That's why this thread exists.
    There is an inherent tension between trade imbalances and the benefits that trade can bring.
    The debatable question is at what point does the downside from trade imbalances outweigh the benefits from comparative advantage.
     
  14. kazenatsu

    kazenatsu Well-Known Member Donor

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    You're assuming China would never do this because they have too much at stake. What if one side called the other's bluff?
    I see this as analogous to a Cold War mutually assured destruction situation, there's a big potential for disaster.

    We also need to keep in mind there are more than economic factors at play, there are also political. This is just a hypothetical scenario but if a war ever broke out, China could greatly benefit militarily if the U.S. credit rating was ruined and it was more difficult for the U.S. to borrow.
     
    Last edited: Feb 1, 2019
  15. Denizen

    Denizen Well-Known Member

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    If you are right then personal sufficiency is the optimum where everyone makes and grows everything they need.

    This is scorched earth philosophy from the new antichrist, Donald Trump who's gut has been the inspiration for US policy since January 2017.
     
    Last edited: Feb 1, 2019
  16. kazenatsu

    kazenatsu Well-Known Member Donor

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    There is an argument for a certain degree of national self sufficiency.
     
  17. james M

    james M Well-Known Member

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    dear China would not want to get 10 cents on the dollar any more than you would. You lost as usual and now are desperate.
     
  18. james M

    james M Well-Known Member

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    insanity and desperation! you lost !! they export more than anyone so disrupting
    the world economy would collapse their economy the most!
     
  19. Denizen

    Denizen Well-Known Member

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    Your surrender is accepted.
     
  20. james M

    james M Well-Known Member

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    you've learned that trade deficits are self-correcting. Imagine one country makes cars and one picks bananas. Their trade balance is self-correcting. Do you understand?
     
  21. james M

    james M Well-Known Member

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    the guy who doubled Dow, 4% GDP, employment to 97%, with more blacks and women working than ever in history!!
     
  22. james M

    james M Well-Known Member

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    turns out his gut is superior to Obama's Harvard socialist brain
     
  23. kazenatsu

    kazenatsu Well-Known Member Donor

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    In the very long-term. But a lot of damage can be done in the meantime.

    If that was the issue there would be no big trade imbalance problem, would there?

    Do you understand the difference between selling bananas and selling all your real estate and debt?
     
    Last edited: Feb 1, 2019
  24. Denizen

    Denizen Well-Known Member

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    Trade deficits in themselves are not bad. What is bad is obstructing the mechanisms that would reverse trade deficits.

    The US $ should devalue automatically to compensate for trade deficits and it would if the US did not encourage foreign governments to send their US$ back to the US in the form of bond purchases and investments.
     
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  25. james M

    james M Well-Known Member

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    not at all. obviously the financial markets are very jittery all the time about short and long term! 1+1=2 Do you think it isn't obvious that you know nothing about economics?
     

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