NYTIMES:
From the ominous way this figure is presented each month, you'd think that "in a perfect world" each and every nation would HAVE TO BUY from overseas the same dollar amount of goods and services as it SELLS overseas because there should always be balance. THIS IS TOTAL BS.
LOOK AT IT THIS WAY: When you buy groceries from the A&P you give them dollars and they give you groceries. You do not have a deficit with the grocer. It doesn't matter where or how he spends the dollars. Ditto the USA and China - just look at China as our grocer.
But actually we're in a better position with China - and others who have a lot of dollars because since they have so much, they are disinclined to do anything to devalue them -- like dump them or start a war with us.
CONCLUSION: (1) "trade deficit" is a phony-baloney term (the difference between what any nation buys from overseas and what it sell overseas is irrelevant - EXCEPT to anti-trade factions; (2) to the extent that foreigners have dollars - it's good for us, not bad. We get the goods, and eventually get the dollars, too - because they eventually have to send those dollars back here. MORE HERE.
The United States trade deficit reached a new high for the second consecutive month, the Commerce Department reported today, widening to a record $68.9 billion in October as oil imports far outpaced exports of capital goods like airplanes.BIG EFFIN' DEAL! This conceptual number - 'trade deficit" is NOT a debt or even a real DEFICIT! All this figure reresents is the fact that WE BUY more stuff from overseas than we SELL overseas. All the stuff is paid for; it is not debt. We give them dollars; they give us goods. THAT IS AN EVEN/STEVEN SWAP.
From the ominous way this figure is presented each month, you'd think that "in a perfect world" each and every nation would HAVE TO BUY from overseas the same dollar amount of goods and services as it SELLS overseas because there should always be balance. THIS IS TOTAL BS.
LOOK AT IT THIS WAY: When you buy groceries from the A&P you give them dollars and they give you groceries. You do not have a deficit with the grocer. It doesn't matter where or how he spends the dollars. Ditto the USA and China - just look at China as our grocer.
But actually we're in a better position with China - and others who have a lot of dollars because since they have so much, they are disinclined to do anything to devalue them -- like dump them or start a war with us.
CONCLUSION: (1) "trade deficit" is a phony-baloney term (the difference between what any nation buys from overseas and what it sell overseas is irrelevant - EXCEPT to anti-trade factions; (2) to the extent that foreigners have dollars - it's good for us, not bad. We get the goods, and eventually get the dollars, too - because they eventually have to send those dollars back here. MORE HERE.
9 comments:
what's even more phoney about the number is that our manufacturing industry that has set up shop in china and ships stuff back to the states is counted in that number. in other words, we are "buying" from our own companies.
There are a few problems with having a large trade deficit:
1 - It means there is less manufacturing in this country then there should be, which means fewer jobs. This is offset by lower prices, so it is unclear how large this problem is for the economy as a whole (though it is very bad for the people who no longer have jobs).
2 - If we rely too much on imports from some country, we have to put up with whatever that country does. For example, if we wanted to force Saudi Arabia to become a democracy we would risk losing their oil. Or if China decides to invade Taiwan, they can threaten to stop exporting to any country that interferes. Right now we might be able to manage the supply shock of losing Chinese imports, but if the trade deficit keeps growing we eventually won't be able to.
3 - Most of the dollars that are exported are used to buy US assets. That means that foreigners are buying US treasuries and US companies. If we keep that up for long enough, all US profits will be exported to the foreign business owners.
4 - Large, sustained trade deficits have always corrected themselves in the past, and always with bad consequences. Maybe this time will be different, but nobody has given a good reason to believe that.
James
hey james -
we dont "need" chinese imports...the chinese NEED their export to the US!
Anonymous, if you think we can survive without chinees imports you are vastly mistaken my friend.
If china withdrew its exports to the U.S, our economy would crummble. And it wouldn't hurt CHinnese company's too much, I agree it would hurt them, but the wound is not a mortal one as they have billions of dollars in reserves and are buying our own companies, when our companies move oversees, it's because they are no longer ours, they are owned by the chineese. Further more china has a Huge Trade with the rest of the world, They don't rely on our trade alone.
Another intresting statistic, China produced more english speaking engineers in the last decade then we did.
Replipundit, when you say the trade defficit doesn't exist, you are vastly mistaken. Bankruptcy doesn't exist in the trade world, but defficits certianly do. And when you make ignorant comments like that it is obvious you arent an economist.
to "9:12pm anonymous:"
1 - i linked to an outstanding economist (whose concept this was) - UCLA Phd W. Williams. USE THE LINK!
2 - the "trade deficit" is LITERALLY an artificial number.
it is derived by subtracting what a nation sells overseas from what that same nation buys overseas.
but in FACT, the nation buys NOTHING. what is bought and sold is by companies. these companies PAY FOR WHATEVER THEY BUY. usually on L/C's which means for all intents and purposes CASH.
each deal is a closed deal. the seller agrees to sell something to the buyer at a set price. the buyer pays on receipt of goods. the deal is EVEN STEVEN. there is no debt. it is a fair trade: money for goods. done deal.
when a nation has companies which buy more from overseas than they sell overseas then you can say there is a trade deficit, but that does NOT mean that there's an IOU from one nation to another. that is BOGUS.
3 - it is LUDICROUS to expect ANY nation to always sell overseas the same amount that it buys overseas. it is ludicrous and POINTLESS -- EXCEPT if one is ANTI-TRADE.
4 - the artificial concept "trade deficit" was coined by anti-trade people, people who were PROTECTIONIST. they have always used it to argue for trade barriers. trade barriers always hurt more people than they protect. they do this becasue barriers always hurt consumers and there are always more consumers than there are people who work in any single industry.
5 - when a nation exports more than it buys can also be hurting its consumers - as japan and china are.
their trade barriers help small segments of their societies but hurt all their consumers.
6 - i suggest you use the link in the post and read williams.
hey anonymous 9:12
the only american company that would be hurt by a decline of chinese exports to the US would be Walmart - and they could easily source that cheap crap in india or vietnam or the Ukraine.
the american consumer is fueling growth and guaranteeing the robustness of the world economy by being undaunted in the face of debt, al Qaeda, earthquakes, tsunami's, french backstabbers, and commies. Happy Hoiliday Shopping!
anonymous 6:32
hey anonymous 9:12
the only american company that would be hurt by a decline of chinese exports to the US would be Walmart - and they could easily source that cheap crap in india or vietnam or the Ukraine.
the american consumer is fueling growth and guaranteeing the robustness of the world economy by being undaunted in the face of debt, al Qaeda, earthquakes, tsunami's, french backstabbers, and commies. Happy Hoiliday Shopping!
anonymous 6:32
reliapundit, there is a flaw with this mans logic.
He claims the grocer is selling him $100 worth of goods, but thats not the case, in order to make a profit and support a family, he has to raise the price of his goods higher than what he bought them for, and he also has to buy his products from another sorce unless he makes them himself, and chances are the people who sold those products to him charged him a higher price than their value, so they can make a profit. And then theres taxes and all that good stuff.
Hi just a note to say I saw your blog and found it interesting. So if you have the time check mine out and say Hi. Also would like to exchange some links.
Thanks
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