Trade Wars versus Trade Deficits

absurd nonsense! changing exchange rate does nothing. If it did every one would do it rather than struggle make more competitive products, obviously.

 

Long-term chronic trade deficits are.
Not only can it lead to instability in employment (like we've see), but it can also lead to one country buying out all the equity of another country.
That means the country that had a trade deficit now has to keep sending exports to the other country and doesn't really get anything in return now.

Do you understand how the concept of debt works? Once you borrow money, you end up having to pay more of it back.
It could easily end up being double or triple the money that was originally borrowed.
Only this is taking place on the level of entire national economies.

 

yo're not listening, there are no problems since deficits are self correcting

 

That's a semantics argument, since it depends on exactly what we mean by "self correcting".

Yeah, eventually when the people in country A start getting really poor, and real estate values and cost of living goes down, exports from country A will become competitive again. That could take an entire generation.

 

the real estate is worth value of bananas grown on it, USA real estate is worth value of what we grow or make on it so there is no difference. In both cases deficts are self correcting. You know nothing.

 

a generation is 25 years, nobody is buying anything today that will be worthless in 25 years. 1+1=2

 

james M, we're not talking about the Chinese simply sitting on a pile of U.S. dollars and then eventually spending it on U.S. products.

If that was the case, you would be entirely right and it would be a relatively simple matter of self-correction.

 

You are implying the US is doomed to the mother of all depressions if foreigners pulled their money out of the US.

 

If foreigners pulled all their money out of U.S. Treasury debt, to be more specific.
Yes, there could be a big financial crisis. You disagree?

But rather it's just the reverse, the U.S. is doomed because of foreigners putting their money into the U.S.
Now the ownership of U.S. companies and properties no longer is in the U.S.
You don't see how that can be a bad thing, when it becomes so one-sided?

The dividends from that capital will now accrue to China, not the U.S.

 

There are essentially two choices with an imbalance: devalue or manipulate consumption and savings rates (given rearranging of the national income identity C+I+G+X-Z). The problem with devaluing the dollar is that it could be destabilising. The latter therefore is arguably best. Part of the puzzle will be automatically solved by consumerism from the Chinese middle class. However, US consumerism is ultimately the main issue.

 

You know nothing about economics. We are talking about that exactly. They would not sit on 1 penny of USA money if it they could not buy valuable stuff with it. 1+1=2 its value is based exactly on what it will buy!!

 

dividend is paid in US money which must be spent in USA 1+1=2

 

One choice is do nothing, and let it self-correct. Other choice is remove liberal impediments to American business: taxes regulations budget deficits trade deals.

 

Ok, but you are ignoring generational effects and inequalities.

The country is not going to devalue until all the older people, who constituted the previous workforce but have now moved into retirement, die off.
Remember, we're talking about trade deficits that have gone on for decades, not just a few years.

Even if it was just for several years, it could still have a profound effect on the youngest generation just entering into the workforce. There is going to be depressed employment (especially at the lower end where younger worker are most likely to be employed) during the trade deficit.

 

You obviously are incapable of comprehending what I was saying.

Yes, obviously the U.S. will get its money back at some point, but let's remove money from the picture for a moment and look at the underlying trade.

China sends cheap plastic trinkets to the U.S. while the U.S. sells off their property and ownership in companies to them.
This property and ownership in companies is the type of thing that keeps bringing in money.
Ultimately, in the long-term it's an unwise trade for the country as a whole. What's going to happen to the next generation from now?

You see, in this case, james M, the U.S. is not getting their money back. When you own something, you don't have to trade.
Do you understand that?

The owners of the U.S. will live in another country. This is wealth that no longer exists for people in the U.S.
When these owners spend money, they're going to spend it in their country (if you're talking about the trickle-down effect).

Yes, of course this money will eventually make it back to the U.S., but that's besides the point. We're looking the flow of actual goods and wealth.
When you become in debt to someone else, the trade is never balanced. They'll always ultimately get back much more from you. In fact it can go on for a very long time, if you don't pay off your debts soon.

Your error is one of fallacy of equivalence. Over the long-term, it's not an equal trade.
And to understand why two individuals would agree to a trade in the first place, you have to understand the fallacy of composition; what's true for the individual is not always necessarily true for the larger group, and this is the case when we're talking about country.
Trade deficits can also encourage low savings rates, which are not a good thing. (Yes, of course people ultimately have a personal choice in the matter, but there is still an outside economic pressure, nudging them to spend more while making it more difficult for them to earn more)

 

No we're not, and that's why you're not able to understand.

If they were buying products back from us, it would be a one-time thing.
But when they back capital, we have to keep paying them to use it.

Think about every time you make a mortgage payment on your house to the bank (if you don't have your house completely paid off). Those mortgage payments are going to China.
When they park their money in U.S. banks, they draw an interest rate from it.

Are you okay with foreigners owning all the U.S. companies, and the people in the U.S. owning nothing?

 

Another random effort! I've referred to 'trade imbalances'. A trade deficit isn't a problem. I've already told you that when I had to inform you of the folly of mercantilism.

 

The US consumer is spending too much of it's human capital on Trump's lies.

 

The right wing Dems are no different mind you...

 

Look up the trade war of 1907 and t connection between trade wars and the great depression.

 

Look up immigration figures between 1870-1914 and its connection with wage growth.
Guess what both the great depression and great recession had in common.

 

I'm on my phone so I can't. Look up what Forbes has to say about trade wars and the depression.

 

I know what Forbes has to say. I don't agree with them.

Why would it be surprising that a neoliberal business publication would blame trade wars as the cause of the depression? Of course they want free trade, it will make their stock portfolio value go higher.

All this free trade is what fueled the financial bubble.
(Because America had plenty of consumer money but it was not sustainable, with so much wealth being diverted overseas)

 

What is a trade deficit? Isn't it an indicator that in order to sustain a society, whether it is voluntary or involuntary, the nation is importing more than it is exporting? What should a nation do who does not have oil reserves? Two options; Go without or import. It should be obvious how a nation is impacted if it has no oil, natural gas, or gasoline/diesel. By importing these items it provides measurable abundance to that nation. Without these imported items that nation will fail. We can guess the same applies to food products, building materials, concrete, energy, etc.

All the trade deficit issue in the USA focuses on products imported from China, India, Mexico, Canada, etc. We can assume 80% of all the products sold in US retail stores is imported; from Ace Hardware to Sears to Macys to Home Depot to Walmart to automobiles, etc. so not having these products would certainly be a bad thing for the US.

Politics tells us these trade deficits mean lost jobs but in truth how many of the products sold in the stores above, plus thousands others, will ever be made in the USA? My answer is 0% to 10%. If most of this stuff will never be produced in the USA, how can there be any lost jobs?

When Trump spews $500 billion trade deficits with China, it seems no one looks at how many jobs and how much taxes and benefits are created by processing $500 billion in US commerce??

Of course, if a nation like the US, with all of our resources, became too lazy to grow it's own food, or make it's own energy, and instead imported this stuff, now that would be something to whine about...it would be a national security issue...

 

That's pretty much the root of the issue.
How are we ever going to try to correct trade deficits if we just resign ourselves to the fact lots of things are never going to be made here? Either those imports need to stop, or we need to find something more to export.

If you don't do that, the country is going to gradually get poorer over the years.
(Until ultimately, at some theoretical point, maybe not within our lifetime, people in the country can't afford to keep importing)

Yes, there are things that the country exports, but the total amount of those things doesn't come anywhere near to the amount we spend on imports.

I was just suggesting that the country might even be better off without any trade at all than such large trade deficits.
(Those deficits can also help fuel an economic bubble too, which is not going to be a good thing)

Now about those jobs. Yes, many of them may not be the type Americans want, but many of them are, like engineers that go along with that production.
And if the country gets poorer over the long-term that's going to be less jobs in general.

What some here don't understand is that money's never coming back to the U.S., at least not in the way you think. Oh it will move to the U.S. but in bank accounts owned by foreigners. They'll keep collecting an interest rate and be able to slowly buy up more of the U.S. This won't simply just involve Americans having to work more to send out exports. It could mean for example that the U.S. won't have the money to buy imports, like oil.
I know in Australia there's already people complaining about wealthy Chinese buying up homes in high price cities and making it more difficult for them to live there.
This isn't simply a problem that's going to end in more U.S. exports.

Imagine for example foreign countries pumping dollars into the U.S., through banks, making housing prices go up and people having to borrow more and pay bigger mortgage payments to live.
It will almost be like Americans won't own their own country, and will be having to pay more money for the privilege of living there.
Only the trickle down effect won't be so strong because the rich people won't live there anymore.