The USA's trade deficits

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MajorMitchell
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The USA's trade deficits

#1 Post by MajorMitchell » Sun May 26, 2019 3:27 pm

How will the USA reduce it's trade deficits and Government debt ?

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Re: The USA's trade deficits

#2 Post by MajorMitchell » Sun May 26, 2019 3:43 pm

Here in the "lucky country" (Australia) we have Government debt at about $500 odd billion. Our Federal Government might produce a budget surplus this year.. maybe. Individual State Governments also have debts.
But the numbers are nothing like the US Federal Government debt.
Then there's the annual trade deficits that Trumptoad is whining about, apparently it's the fault of the trading partners in his view.
It's easy to quip.. work more productively, save more, import less. Or similar.
What does the USA derive the most export income from ? Hollywood movies? Armaments would have to be a big earner, but I'm not sure if ramping up armaments exports is the best solution.
Is it a "just to difficult to solve" problem ? How long can the USA go on before the house of cards tumbles ? There's huge private wealth in the USA, but can it be relied upon ? Billionaires can shift wealth out of the USA.
I don't think Trump can solve the trade deficits problem, he's just engaged in window dressing & sabre rattling imho. . Unfortunately sabre rattling leads to conflict, and Trump seems to.like conflict as it often is a useful distraction. Why there is a fight, what the fight is really about get lost in the confusion

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Re: The USA's trade deficits

#3 Post by ksako8 » Sun May 26, 2019 5:12 pm

Trade deficits go hand in hand with low savings. When US citizens start to save more (or spend less on credit) the trade deficits will disappear

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Re: The USA's trade deficits

#4 Post by Randomizer » Sun May 26, 2019 8:35 pm

Years of buying cheaper made goods from other countries has left us in permanent annual trade deficits. We sent the manufacturing and supplies overseas so some industries can't even make things here at comparable prices. As a friend complained, sure his company has two suppliers for needed parts, but they are both in China and there isn't one in the US.

Then how did Trump get an MBA without learning that tariffs are useless when almost all the suppliers are in those countries that he set higher tariffs? We or the US businesses that need the goods pay the tariffs since we don't have a choice without local sources. Take rare earth elements needed for everything from computers to military weapons with 80% mined in China and only one small US company. Even Trump admits to buying cheaper Chinese steel for his buildings.

The last time the US ran an annual budget surplus was under Clinton. Then the Republicans took over all the branches of government and spent money like crazy to improve their chances of getting re-elected. Forget fiscal responsibility when they needed to buy votes;

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Re: The USA's trade deficits

#5 Post by pangloss » Sun May 26, 2019 11:15 pm

I think there's a pretty big problem of economic illiteracy amongst the general US population and also the media and politicians who are supposed to inform them. To some degree, that's to be expected, because economic theory is difficult for a lot of laypeople to understand. On the other hand, there are a lot of ways that complex ideas can be presented more simply and accurately, and they are either being presented as much too difficult or in a manner that is so simplified that it only adds to the confusion.

The fascination with the national debt and trade deficits is one symptom of this. To start, these issues are only tenuously related and both require context to understand if they are good or bad.

Government debt on its own is neither good nor bad. It doesn't matter how many zeroes are at the end of the number, what matters is the size of the debt relative to the productive power of the economy and what you spent the money on. If a government borrows 80% of GDP to spend on statues in the president's likeness, that's bad. It's not a good use of productive resources, and it's not a good use of money. It creates a few jobs for the sculptors and marble and stone suppliers, but that's about it.

On the other hand, if a government borrows 80% of GDP to spend on health care, anti-poverty initiatives, and education, that's a good thing. People will be spared a lot of suffering and you create a stronger economy. Healthy, educated people who don't live paycheque to paycheque are more productive, do better work, and are more innovative. Even though you have to pay that back in the future, it's worth it for the investment in the present.

Of course, there's lots of room for debate on what constitutes a good use of debt-financed government spending. But there are a lot of people who just focus on the absolute number and ignore everything else, and that's a bad way of doing it.

Now when it comes to trade deficits, the same type of thinking applies. A trade deficit occurs when a country imports more than it exports. This on its own doesn't really tell us anything. It depends on what a country is importing, what a country is exporting, and the value of that country's currency. If a country is importing statues of the president and not exporting anything, then it's probably bad. But if a country is importing a lot of productive stuff (for example, machines that make factories work faster, or faster computers, etc.), then it's probably worth it. With better productive tools, a country can produce better goods, and everyone is better off.

Additionally, countries that have a free-floating currency generally see their trade deficits or surpluses erased over time. If people keep buying goods from that country, the value of that currency is going to go up, and that will eventually cause people to stop wanting to buy as much from them. The US is a bit of an exception here because of the status of the US dollar as the global reserve currency, but there are other reasons (like interest rates) that can affect a country's trade imbalances.

Lastly, a country with a trade deficit generally has a capital/financial account surplus, which means that there's more foreign investment in the country. In other words, there's more money coming in. That's not necessarily a bad thing, and can often be beneficial.

So I think the focus on the absolute numbers here is misplaced. I don't think the US really needs to care about its trade imbalances right now (my Googling tells me it's about 2.5% of GDP, which is pretty middle-of-the-pack), and the national debt seems quite high, but the country is managing very well with it.
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Re: The USA's trade deficits

#6 Post by MajorMitchell » Tue May 28, 2019 1:50 pm

Thanks pangloss for your contribution. My concerns regarding the USA are genuine, as an Australian the USA is our major alliance partner, and we're in that club of liberal democracies that stand against tyranny.
But I have real concerns about the way things are going in the USA. The increasing inequities with the distribution of wealth, the problems facing the middle class, the bitter divisiveness in USA politics. The problems of aging infrastructure and lack of adequate investment in rebuilding that infrastructure.
I want the USA to make progress in solving it's internal problems, to be a fairer society, a more compassionate society.
Some of the problems are being experienced elsewhere, in Europe, the political divisiveness, the rise of populist nationalism, scapegoating of immigrants, the rise of demagogues as in Hungary. I sometimes wonder if too many people have forgotten what happened in the 1930s and what that led to, the worst conflict of the 20th century.

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Re: The USA's trade deficits

#7 Post by CruaaderReynauld » Thu May 30, 2019 1:48 am

MajorMitchell wrote:
Sun May 26, 2019 3:27 pm
How will the USA reduce it's trade deficits and Government debt ?
So this debt in America has been around for a while from what I can tell, and while debt is bad, governments tend to juggle around a lot of debt, as they have to keep their country stable somehow. I'm all for decreasing USA debt but I dont believe we can eliminate it.

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Re: The USA's trade deficits

#8 Post by Randomizer » Thu May 30, 2019 3:16 am

Eliminating the US debt would take a few decades of annual surplus budgets which is no longer realistic. However we could go back to the older view of running up surpluses during booming economic times to reduce the debt and only have deficits during recessions to help the economy recover quicker.

The current system of deficits as far as the eye can see makes the interest paid on debt taking up a larger percentage of the annual budget. Since the US dollar is a major currency tied to other foreign currencies, we can't just print too much more money to spend our way out without retaliation by the rest of the world.

Meanwhile China is threatening to stop sales of rare earth minerals to the US as part of Trump's trade war.

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Re: The USA's trade deficits

#9 Post by Carl Tuckerson » Thu May 30, 2019 6:55 am

I think when most people discuss the US's trade deficits, the specific concern is that we have a significant trade deficit with China, which brings with it two problems.

1. Much of that deficit is the result of a sharp decline in American manufacturing jobs, which left for other parts of the world, notably including China. This has been devastating for the American working and middle class, but it's not strictly due to the US having a trade deficit with China. Conceptually we can imagine a world where we have a large trade deficit with China but we still have a booming manufacturing sector that exports goods to, say, Europe. The trade deficit and the damage done to the American working and middle class are two concurrent effects of the same trend.

2. For a variety of reasons, the US and China have become geostrategic rivals on the world stage. Trade deficits with China reflect a short-term dependence on Chinese exports for the American economy to function. Although the US is theoretically capable, in the incredibly unlikely event of outright war with China, of producing its goods at home, the transition away from interdependence with China would be very expensive. And it's not difficult to envision the prospective problems that could arise if the US and China continue to be major rivals, and the US depends on China to create its goods.

Trade deficits aren't inherently bad, but having one with a political rival can be, and the broader phenomenon responsible for those deficits can be bad if it results in the destruction of your working and middle classes.

~

I think the debt is resolvable "on paper." It's easy to forget that the US debt exploding into obscene totals only occurred within the last fifteen years, as a result of two expensive and largely purposeless wars and a string of unwise and ineffective expenditures.
Our problem, sadly, is more fundamental. Our elites are owned by war profiteers and other scammers who treat the US as a piggy bank to be broken and stripped of its wealth in a manner which enriches them most. The political will is nonexistent, and I fear will not return short of drastic, even violent, disruption.
Instead we will simply continue running deficits, put on a big horse and pony show about the debt ceiling every so often for kicks and giggles, then invariably increase the portion of government revenues going to interest payments on our debt. I honestly have no idea how it ends because eventually we "have" to default on our payments to someone, but we have half the world by the balls since they're using our money and there's no way anybody can come make us pay if we default.

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Re: The USA's trade deficits

#10 Post by flash2015 » Thu May 30, 2019 4:26 pm

I think we can get into a false sense of security with the deficits. If you look at the servicing cost of the federal deficit, you will say "hey, that isn't too bad!" as the servicing cost has hovered around 1.5% of GDP (~9% of the Federal budget) since the year 2000 and the servicing cost was much higher in the 80s/90s:

https://fred.stlouisfed.org/series/FYOIGDA188S

But just looking at this doesn't take into account the changes in interest rates since the 80s. 10-year treasury yields have been on a steady downward trend since 1980 when they reached a high of close to 15% (the rate is currently around 2 1/4 percent)

https://www.multpl.com/10-year-treasury ... le/by-year
https://www.macrotrends.net/2016/10-yea ... ield-chart

Given how large the budget deficit is and given that interest rates really can't go much lower everyone is predicting this servicing cost is only going to go up. And if we have a significant shock which causes inflation (e.g. perhaps a major trade war or real war) this servicing cost is going to go up even faster. If we go back to interest rates like the early 80s the servicing cost could be 7-10% of GDP and taking over half the budget. That wouldn't be a good thing.

It is also important to understand how the budget deficit is financed and this is where the trade deficit (and more importantly the current account deficit/capital account surplus) comes in. The US has been running current account deficits since the 80s:

https://tradingeconomics.com/united-sta ... nt-account

Which means we are becoming more and more dependent on foreigners to finance the deficit...which means we rely more and more on foreigners to retain confidence in the US economy. This is one thing that separates a country like Japan from Greece. Japan has much bigger debt as a percentage of GDP than Greece:

https://data.oecd.org/gga/general-government-debt.htm

But Japan has had big current account surpluses for decades meaning that its government debt can be largely financed domestically.

The US still has an advantage over Greece because of the US currency reserve status and because all US debts will likely be in US dollars meaning (i.e. no exchange rate risk). If push comes to shove the US could massively print money to get out of its debt mess. Though that is a one time "get out of gaol" card which it would likely never be able to use again.

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Re: The USA's trade deficits

#11 Post by MajorMitchell » Sat Jun 01, 2019 1:58 am

Thanks flash, interesting reading, I don't look at those internet thingy links because I don't really understand this internet thingy. The point you raise about the USA relying on other nations to finance it's debt is a real worry, what that leads to. It's probably no problem with a nation like Saudi Arabia who will be a good ally and only want in exchange for the USA to overlook human rights violations etc. Somehow I don't think a nation like China will be such a benign banker to the USA.
Sort of begs another question, in hindsight was it such a good idea to encourage the Chinese to become Capitalists ? But that's essentially rhetorical since we can't unscramble that omelette.

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Re: The USA's trade deficits

#12 Post by MajorMitchell » Sat Jun 01, 2019 2:11 am

I'm just a Daffy old Blighter, so for me, I see only two ways to reduce an annual budget deficit .. cut spending and for me that's virtually impossible, I can trim my own expenses slightly, but the notion that I could reduce the expenses run up annually by my Lovely Fire Breathing MemSahib or delightful Princess Estelle is simply ludicrous, so the only alternative is to sell assets, never a good idea in my opinion, particularly with income producing assets, or the only real option, increase income.
For a Government, that means raising more tax revenue.
I can't see how the Government of the USA can significantly cut expenditure, but real experts might know of ways.
Which leaves ..raise taxes, and I can't see those in the USA with great wealth and power letting that be imposed upon themselves.

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Re: The USA's trade deficits

#13 Post by Carl Tuckerson » Sat Jun 01, 2019 4:32 am

MajorMitchell wrote:
Sat Jun 01, 2019 2:11 am
I'm just a Daffy old Blighter, so for me, I see only two ways to reduce an annual budget deficit .. cut spending and for me that's virtually impossible, I can trim my own expenses slightly, but the notion that I could reduce the expenses run up annually by my Lovely Fire Breathing MemSahib or delightful Princess Estelle is simply ludicrous, so the only alternative is to sell assets, never a good idea in my opinion, particularly with income producing assets, or the only real option, increase income.
For a Government, that means raising more tax revenue.
I can't see how the Government of the USA can significantly cut expenditure, but real experts might know of ways.
Which leaves ..raise taxes, and I can't see those in the USA with great wealth and power letting that be imposed upon themselves.
The US could easily make enormous cuts in expenditures if our political class weren’t so corrupt.
Prime example is military spending. Even if you assume we need to outspend the next 10 countries combined (which we probably don’t) the way we do it does not lead to equivalent returns in our strength compared to everyone else. We routinely buy outdated equipment from military industry giants because our politicians are owned by those corporations and those purchases maximize profit margins for them. We go on absurd adventures that benefit no American. It is utter madness.
We also spend billions on foreign aid every year that we KNOW is going to corrupt dictators and get no meaningful benefit in return. It would be crazy even if every cent went to people in need, considering how many people in the US are in need and go without help. It is madness that the money mainly goes to despots and tyrants.

The issue with the budget is not one of possibilities but of will. I can’t believe I’m going to say something flattering about the damn ChiComs but I guarantee you that if we had leadership as effective as Xi Jenping and his court, and that leadership wanted to fix America’s problems, it could and it would.

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Re: The USA's trade deficits

#14 Post by Randomizer » Sat Jun 01, 2019 4:39 am

THe old thing about cutting waste and fraud would cut unnecessary spending and increase revenue, but Congress has cut the IRS budget to go after tax fraud and audit the richest taxpayers. They also require government payments to be done quickly even when their is suspected fraud for say Medicare payments.

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Re: The USA's trade deficits

#15 Post by MajorMitchell » Sat Jun 01, 2019 5:33 am

Apologies Carl & Randomizer, I should have been more expansive on why I didn't think the Government of the USA could cut expenditure significantly, but you've explained the core reasons. Politics, corruption and powerful interests. I did think of military & security spending and I'm sure huge savings could theoretically be made there, BUT... Carl explains why it would be so difficult better than I can, so difficult that it's virtually impossible.
Carl makes what I think is a great point at the end of his post, about the relative merits of the leadership in China compared to the USA. Yes the Chinese leadership have far greater powers domestically than the POTUS & the administration, and while I'm sure there is some corruption in the Chinese leadership in terms of dynasties with great political influence, the Chinese leadership is in many ways evolving to a meritocracy, in the majority, only the super intelligent and most capable & ruthless characters rise to the top in China's leadership.
Perhaps a group of really dedicated powerful business persons in the USA, determined to put national interests first could gain political power and achieve significant reform. I'm thinking of people who are the antithesis of Trump in character. A new Coalition of the willing and capable. So many obstacles, the vilification of elites etc etc.
Are we witnessing the first stages of something similar to the fall of the Roman Empire with the USA? I hope not, but fear it might be so.

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Re: The USA's trade deficits

#16 Post by MajorMitchell » Sat Jun 01, 2019 5:40 am

It's a cultural problem as well, ripping off the Government of the USA in a multitude of ways seems to be seen as a virtue. Dodging taxes, corrupt contractual deals with the Government that enrich a business or individual. The basic proposition that self interest above all en masse is superior to collective community and national interests balanced with self interest, is I think, a great weakness.

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Re: The USA's trade deficits

#17 Post by Carl Tuckerson » Sun Jun 02, 2019 8:00 am

I am totally agreeing with the Major on something. What a world. ;)

You make a highly relevant and sharp point about culture that I think gets overlooked in discussing America and China.

I cannot express how much it grates me to speak so highly of the Chinese... but one thing I have noticed in their leadership is that they sincerely believe in the idea of the Chinese nation, that they have a civilization to be proud of, and that the fate and fortune of the Chinese nation, what's good for China, is the first and foremost concern in policy making.
There is most certainly corruption among the Chinese elite. They skim off the top like every other elite out there. But they do earnestly want China to be great, to be the world's greatest power again, and are willing to do whatever it takes to accomplish this. This shared desire for Chinese ascension on the world stage undercuts some of the corruption, because the rest of the Chinese elite will not hesitate to cut out someone who lets personal gain undermine the Chinese nation.

Yet for all the bravado and patriotism of the average American (all of it sincere and frankly well-deserved), I don't think many of our elites, regardless of political affiliation, mean a word of it. A few do, but the overwhelming majority of the American elite feel no obligation or connection to America or her people, nor do they feel any desire for America to be great.
That's part of why "Make America Great Again" resonated so much with average Americans: it is frankly, and sadly, a bold stance to expect that America's elites would work for the benefit of the American nation. The average American knows the score. He knows that the elites that run his country would just as soon import a cheap foreign knock-off of him as spend even thirty seconds listening to his problems, let alone take any act to solve them. Congressional approval routinely hovers around the 10% mark. That is absolutely abhorrent for an ostensibly representative government. Our elite does not care about us or about America.

As for a fix? I think it's going to take a precipitous decline if not outright collapse to shake this country out of its malaise. The only businessmen with enough wealth and power to form a coalition to break into politics care nothing for this country beyond its material wealth and the connections they can make within it. To the extent that they have interests, those interests are global: they all like to play hand at saving the world, it's what American high society rewards. They like the big and incredibly difficult to resolve global problems like climate change, because it lets them pretend to be virtuous and bold and empowered to change the world without ever requiring them to deliver. Fixing the problems of the working man is hard and thankless work. Why do that when you can write a check to some NGO? Worse, the elites themselves are among the main problems of the working man. Fixing that problem will make you a lot of enemies.
No, it's going to take a breakage that makes the average man angry and dispossessed and economically insecure enough to start burning things down before real change can occur. It took the likes of Robespierre and the French Revolution before France could replace the mediocrity and decline of the last Bourbon kings with the greatness of Napoleon. It's exceedingly rare for a country to have the collective foresight and vision to make the clean transition of power from a regime that outlived its expiration date to a new order capable of taking on the challenges of the present day. And while I'd love to think America can be exceptional here, none of the evidence points to that being the case. It's not going to be pretty.

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Re: The USA's trade deficits

#18 Post by Randomizer » Sun Jun 02, 2019 9:59 pm

You aren't going to see the US improve when the swamp is running everything for their own gain. The Trump family made its some what legitimate fortune from using cheap foreign goods from Chinese steel and shoddy law breaking clothing to hiring illegal migrants. Trump admitted in the debates that we need more laws to stop him, but we aren't getting them.

MAGA is just a slogan to Trump to get elected and not a principle he follows.

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Re: The USA's trade deficits

#19 Post by MajorMitchell » Mon Jun 03, 2019 11:20 am

I was watching a TV program about Railways in the USA hosted by Michael Portillo from the UK and he finished the program in Baltimore and was discussing the war of 1812 between the USA and the UK, when the British burnt the White House, and also when the national anthem of the USA was written.
Michael made an observation about the division between the privileged ( mainly white) and disadvantaged ( mainly black) and said that the UNITED States was still a "work in progress"
Which I think is most perceptive. The States might be united but the people are divided, and the divisiveness seems to be getting worse, not better.
. Friends of the USA genuinely want the USA to "heal itself"

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