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Post by Christine on Aug 1, 2018 16:39:42 GMT -5
Pardon, but I very clearly noted that trade deficits were not debts in the sense of owing someone money. That example seemed to be the easiest way to explain bilateral trade deficits and why they don't mean anything on their own--as Cass has correctly noted--but can mean something (do mean something) in the larger picture. Using the example of debt to describe something that is *not* debt is misleading, half-hearted disclaimers notwithstanding. It seems best to explain the issue directly and without using metaphors. It is especially inappropriate when the argument against having a trade deficit is that the US are excessive consumers who rack up too much debt (which, as to consumer debt, may be true, but is not, as far as I can tell, relevant to the discussion of why trade deficits occur). It is balanced by the proportionally higher value of the US dollar, and the resulting investments in our country, correct? And investments (equity) are a good thing, yes? But you are saying that a surplus (or balance) of trade is better than a deficit of trade offset by an influx of capital, whether through investments or through the exchange rate. Why is this true? I'm a newb on the subject from a global perspective - but it seems like this is not like a typical closely-held business where you want to maximize sales and net profit and pay dividends to owners. It's not a single balance sheet and and a single profit and loss statement on which a single entity is judged. It seems like, to a large extent, the global "return to the shareholders" is accomplished by the trade deficit, which increases the demand for U.S. dollars, which increases the value of the dollar and thus the investment, which provides incentive for investment in US dollars, and so on. Now, maybe there's an issue with some of the "shareholders" in the US being foreign entities, I don't know. But regardless, investment (capital) is not debt. No interest rate, no payments, no call date or potential asset forfeiture. And hell, every publicly traded business needs investors, which will come and go - the important thing is to keep the value of the business increasing, and this attraction is why the US is receiving more influx of capital, no? It makes sense that if US dollars are more valuable, the US will have an influx of capital. It also makes sense that if any country can get the same thing cheaper (including the effect of exchange rates) from somewhere else than the US, it will buy it more cheaply. China is able to sell to us because their goods are relatively cheaper. Monies don't come in, in the form of investment, because they have (I assume) an unfavorable exchange rate. Again, I don't see what the problem is unless selling goods is in some way objectively superior to selling services or gaining capital investment.
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Post by robeiae on Aug 1, 2018 17:44:35 GMT -5
Using the example of debt to describe something that is *not* debt is misleading, half-hearted disclaimers notwithstanding. It seems best to explain the issue directly and without using metaphors. It is especially inappropriate when the argument against having a trade deficit is that the US are excessive consumers who rack up too much debt (which, as to consumer debt, may be true, but is not, as far as I can tell, relevant to the discussion of why trade deficits occur). Inapparopriate? Please. And I don't think you're really understanding what the deficit is, what bilateral deficits are. True, the trade deficit is not a debt, but it is reflective of an accumulation of what are technically debts at the micro level. If--using my previous example--I am in China and Cass is in the US and provided a (lawyer) service to me, for which she billed me $50, then that transaction would be a part of the both the US' And China's balance sheet, a part of each's trade deficit or surplus. If that was the only commerce that occurred between the US and China, then the US would have a bilateral surplus of $50 dollars with China. Well first off, you're putting too much emphasis on this idea of "investments." Technically, when China buys truckloads of US treasuries, that's an investment. But that money is not being used to grow the US economy or anything else, because as I have explained the US government is running deficits as well. You're wrongly assuming that the trade deficit--the current account deficit, actually--is offset mostly by "capital" in the sense of "investment capital." Some of it is to be sure, and those monies mostly end up in the market. The scenario you were painting--and maybe you realize this--was that of a trickle down economy. I'm okay with that, to be sure, but it's simply not anywhere close to being the whole nut of the trade deficit. That's true. It's true that the US consumer economy (coupled with the size of the US economy, the reality of New York being the financial capital of the world, and the role of the US as the lone superpower) make the US an attractive and safe place--most of the time--to invest. But what you're not catching--even though I've gone over it multiple times--is that a trade deficit is not automatically a Bad Thing. It can reflect an expanding economy, to be sure. AGAIN, what makes it bad news for the US is the rest of the picture. The US has a trade deficit year in and year out because its citizenry, it's States, and it's central government keep spending money that they don't have, thus descending deeper into debt. SO AGAIN, the problem with the trade deficit is not only that it's consequence of these growing debts, but that it automatically creates new debt, as I've explained, because it's habitual. You're focusing solely on the macro and international concepts here--like most of the pieces talking about how trade deficits aren't bad--from a largely theoretical point of view.
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Post by Christine on Aug 1, 2018 18:29:17 GMT -5
Inapparopriate? Please. And I don't think you're really understanding what the deficit is, what bilateral deficits are. Pardon, but I most certainly do understand what a trade deficit is and what a bilateral trade deficit is. What I do not understand - and you're not helping - is what the trade deficit means. I.e., what the economic implications are. At no point have I been talking about, quoting pieces on, or asking questions about bilateral trade deficits. If you paid Cass for her services in cash, there would be NO DEBT and she would STILL have a trade surplus with you, so enough with trying to justify your terrible metaphor. Does our government running a deficit contribute to the trade deficit? Yes, our government should balance the budget. And no, I'm not talking about trickle down anything. I'm talking about whether a US trade deficit (in goods) is a bad thing, what is causing it, what it causes. Re: bolded I'm not sure you can blame the macro on the micro. I will research more. But it does not make sense to me to link these things, e.g., if the US buys less from China and instead makes its own products for US consumers, this would not change the level of government spending. It might help the govt spending deficit if the US companies make profits and pay taxes, so there's that. If the US sells more for international consumption, it potentially produces more tax revenue as well. But the offset of this is a decline in the value of the dollar internationally, and thus related investments (to an extent, at least, by your admission above). Edits above and to add: If the US government balanced its budget, how would global trade and/or investment be affected? If US consumers decreased spending, the US demand for goods would decrease, the US goods trade deficit would decrease - and then, demand for the US dollar would decrease, so investment/capital would decrease. So what is the benefit?
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Post by Deleted on Aug 1, 2018 20:06:16 GMT -5
$50?! I can only assume that the service I provided was a quick nod as I walked by.
This post is gonna run you $200.
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Post by gaild on Aug 2, 2018 3:34:03 GMT -5
Here's a small backlash against the U.S. trade tariffs that caught my attention. Rwanda imports secondhand clothing from the U.S. Following the increase in tariffs applied by the U.S. to its manufactured clothing, Rwanda has banned the import of secondhand clothing. The U.S. responded by withdrawing AGOA (African Growth and Opportunities Act)benefits. Rwanda effectively said, 'keep your benefits' and is sourcing markets in Europe. linkIf a small, economically challenged country like Rwanda can refuse to be bullied into paying higher tariffs, I have to wonder about how effective this increase in tariffs is going to be, in the longer term.
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Post by Deleted on Aug 2, 2018 6:18:24 GMT -5
Historically, as some of my cites discuss above, they have not worked out well.
Also, as some of cites point out, trade deficits have historically been a poor indicator of our economic condition -- by which I mean, they have not been associated with a bad economy. Indeed, if anything, it's been the reverse
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Post by robeiae on Aug 2, 2018 9:04:41 GMT -5
At no point have I been talking about, quoting pieces on, or asking questions about bilateral trade deficits. The only point of my little example was to show why Cass and a number of the sources she cited were 100% right when they claimed that--contra Trump's tweet--a bilateral deficit with Germany means practically nothing. That's it. And in that regard, I think it was pretty good. If you have a better one, feel free to share it. On this: I've done an awful lot of explaining here, when it comes to my position on trade deficits. You say you understand what a trade deficit is, yet you're wound about about an example of mine that--while certainly flawed in some respects--is nonetheless grounded in the realities of trade deficits. And previously, you said this: I've harped on the debts inside the US repeatedly and--I thought--explained why they were relevant. Yet you think they're not relevant? At the basest level, there is a trade deficit in the US because of the spending habits of US consumers. And those spending habits are financed how? With consumer debt, obviously. And the governments in the US are no better. They're running deficits--mostly--and are deep in debt as well. So the bolded section from me that you didn't understand: The US has a trade deficit year in and year out because its citizenry, it's States, and it's central government keep spending money that they don't have, thus descending deeper into debt.The trade deficit occurs precisely because the US buys way more from the rest of the word than it sells (in goods and service). And that buying is being done largely with money that the US--its governments and citizens--don't actually have (for the most part). And the trade deficit is partly balanced by the US government selling securities to foreign governments, companies, and individuals. Yet those monies aren't sufficient to pay down the US' debt, and thus add to the yearly debt service of the US (because of interest payments). Now again, the first line of the above paragraph is not a problem as a matter of course. It's the rest of the story that makes it a problem, and the fact that all of this is the case year after year after year. The US gets to play this game--just as England once did--because of its role in the world. And that's all good and well (though I find the lack of appreciation on this point from many on the left kind of amusing, since there's an obvious lack of "economic justice" here) in the moment. But I think it quite obvious that this cycle cannot continue. And indeed, history suggests that it won't. Moreover, it also suggests that there will be more economic crashes on the horizon. When? I certainly cant say, because I know enough to know these things can't be accurately predicted. Nonetheless, systemic debts and deficits are bad news over the long term. Quite obviously. So, again: trade deficits aren't a problem in and of themselves, they're a problem when they're systemic and driven by debt, as is the case for the US right now.
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Post by robeiae on Aug 2, 2018 9:31:04 GMT -5
Also, as some of cites point out, trade deficits have historically been a poor indicator of our economic condition -- by which I mean, they have not been associated with a bad economy. Indeed, if anything, it's been the reverse That's mostly true. For instance, following the 2007 financial crisis, US trade deficits dropped significantly. And during the dot com bubble in the mid to late 90's, they grew. But note that they--the trade deficits--were also growing in the early to mid 2000's (the US reached a record high in 2006). And we know now that US economic performance in those years was something of a mirage. Indeed, the post-2000 recovery (from the popping of the tech bubble) is often called a "jobless recovery." And US median household income never recovered to its late 90's high. The trade deficits in these years was being financed by new debt, quite obviously.
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Post by celawson on Aug 2, 2018 11:53:55 GMT -5
The above is from Robo: Before I address that, a quick comment -- I mentioned Germany because Germany is the strongest economy in the EU, in many ways it drives the EU decisions for trade, and it is currently in a very good place economically to spend more on American goods. Once again, I agree with Rob. This is not an isolated issue of a goods deficit for one year or two or several. It's been going on for a long time, and I would like to point out that it's not just the number of years we've had a goods deficit that's a problem, it's also that the deficit is INCREASING each year as well. How can that be sustainable? www.cnbc.com/2018/07/09/rising-energy-prices-are-a-bigger-danger-to-the-us---commentary.html I came across something interesting in my reading -- the German left leaning magazine Spiegel had a recent article in which their view of the Trump adminstration economic policy seems to give our admin credit for a hard hitting, multi-faceted approach to defending America's dollar in the global market. No comments about Trump's stupidity or blindness or carelessness or ignorance is anywhere to be seen in that article. Quite the contrary: www.spiegel.de/international/world/donald-trump-making-life-tough-for-german-companies-a-1212271.htmlNow THAT perspective makes Trump look a heck of lot more knowledgeable than Ocasio-Cortez. The term "economic genius" might even come to mind, at least compared to her. Yes, this is just one artice, but I think it's interesting to see what people in other countries think. And he might be going about things all wrong - who knows, I certainly don't. But it's clear Spiegel does not think Trump is blindly shooting from the hip with no knowledge. Disclaimer - I don't know much about economics, I'm just using common sense in my perspective that decades of goods deficits, which are increasing steadily, in the context of our debt, are probably not a good thing for the U.S. in this moment.
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Post by Christine on Aug 2, 2018 13:24:55 GMT -5
At no point have I been talking about, quoting pieces on, or asking questions about bilateral trade deficits. The only point of my little example was to show why Cass and a number of the sources she cited were 100% right when they claimed that--contra Trump's tweet--a bilateral deficit with Germany means practically nothing. That's it. And in that regard, I think it was pretty good. If you have a better one, feel free to share it. Fine. Rob provides financial advice to Cass. Cass provides legal advice to Rob. If Rob pays waaaaay more to Cass every year, rob has a "trade deficit" in his services trade with Cass. It would be incorrect to say, look how much more rob pays to Cass than Cass pays to rob, it's terrible and it's not fair and rob is surely going to go broke, because he's not making enough money from Cass, zomg!!11!!one!one!!1! I am well aware of your general concern with debt. I share that concern. But how you tie it into trade deficits is, to me, not logical. The solution to excessive debt is to spend less, earn more, or both. That the money is spent globally is irrelevant, (and possibly it's somewhat of a mitigating factor, because of the relative increase in value of on the foreign exchange market from more investment). I mean, you could be up to your eyeballs in debt never having spent a penny outside the US. The US government could spend every single dollar of its funds with US companies and STILL have to borrow from China because it spends too much. Another scenario is where spending is not "excessive," but revenue is stagnant or declining. The goods trade deficit is one prong of the measurement of global activity. The services trade surplus, the capital surplus (and yes, I understand some of it is T-bills and corporate debt - I've read that of the capital influx, around 20% is US government debt*) are three prongs of global exchanges, and they do, essentially, net to zero. So to look at only one, or the net of two, and call it OMG bad! debt! is incorrect. And I realize YOU don't think that, exactly, but it is what you are communicating - and it's exactly what laypeople DO think when they hear trade deficit (see celaw's post) and in many cases it's YAY TRUMP is "fixing" the bad terrible trade deficit, which is ridiculous, imo. Re: the bold - see, this is where I think there's an unnecessary conflation. It's not "the rest of the story." It's a separate story. IMO. No, because it's incorrect to blame trade deficits for excessive spending. You can't fix excessive/deficit spending by "fixing" trade deficits. *Re debt vs. equity - 20% is treasury bills and bonds, and also some good points re: capital investment in this article: www.forbes.com/sites/danikenson/2016/03/22/the-u-s-trade-deficit-is-not-a-debt-to-repay/#4ee926223327
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Post by robeiae on Aug 2, 2018 13:57:08 GMT -5
For someone who claimed that they didn't understand what the trade deficit means, you seem pretty certain that you have it nailed down, now.
But you still seem to be missing it.
You say this:
Not logical? LOL. Get this: if you buy a new flat screen TV from Best Buy--a US-based company--you've contributed to the trade deficit. If you put that purchase on a credit card--like a good chunk of American consumers do--you've also increased your own personal debt. That's the sort of micro event that creates the overall trade deficit. You don't need to spend dime one "outside the US" to contribute to the trade deficit, at all.
So your belief that all of this is a "separate story" is wrong. The fact that many economists don't want to concern themselves with these other things is not my problem, because they are absolutely linked. The article you cite from Forbes absolutely says as much re government debt. And I don't disagree with Ikenson's conclusion in this regard at all: reducing government spending is the correct approach to government debt, and that goes hand in hand with reducing personal debt, as well.
I am NOT blaming trade deficits for excessive spending AT ALL. I'm saying--quite clearly, I think--that deficit spending and increasing debt contribute to the trade deficit. And at the same time, a year-in, year-out trade deficit tends to increase government debt, as well (as I have explained).
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Post by Christine on Aug 2, 2018 14:19:24 GMT -5
For someone who claimed that they didn't understand what the trade deficit means, you seem pretty certain that you have it nailed down, now. But you still seem to be missing it. You have not addressed any of my points above. My quest for the "meaning" of trade deficits, from the beginning, has been whether they are in fact "bad" economically, and if so, why. My increasing certainty is after having read both your posts and other articles on it. And for all your hinting at ignorance or stupidity on my part, I dare say I have a firmer grasp on general financial principles than the average person, including you. LOL yourself. Yes, rob, I realize that a lot of the stuff we buy is manufactured elsewhere. My point is that EVEN IF WE DIDN'T, even if everything we bought was MADE IN THE USA, we could be in DEBT, individually and/or as a nation, as could our government. You are the one who still seems to be missing it, imo. Let's say I spend too much, and I'm in debt. My biggest expenditure is on tribbles. I buy 20% of my tribbles from a company in Toledo, Ohio, and 80% of my tribbles from a company in Japan. I also sell widgets. I sell 80% of my widgets to U.S. customers and 20% of my widgets to customers in Japan. You come along and say, well, your trade deficit with Japan isn't a problem but now you're spending too much, so YOUR TRADE DEFICIT WITH JAPAN is a problem. You're making the fact that I buy from Japan an issue. It ISN'T buying from Japan that is a problem. It's simply too much spending. I could sell 100% of my widgets to Japan and buy 100% of my tribbles from the US and I would still be in debt, maybe even worse debt, if Japan tribbles are less expensive.Now, maybe there could be reasons why buying tribbles from Japan IS a problem. We haven't even discussed such things, because we've been talking about DEBT for eleventy million years. Right. So what does the trade deficit have to do with it, outside of being a different "place" where we spend too much? Now you are saying it more clearly, without the BUT NOW TRADE DEFICITS ARE A PROBLEM bit at the end. But I still think you don't get my point.
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Post by celawson on Aug 2, 2018 14:56:16 GMT -5
From Christine:
Can we at least agree that a goods deficit has an adverse effect on manufacturing jobs? Or put another way, that selling more American goods to other countries would result in the need to manufacture more goods, hence more manufacturing jobs for U.S. workers? That, to me, is one reason a goods deficit is not desireable.
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Post by Christine on Aug 2, 2018 17:16:34 GMT -5
From Christine: Can we at least agree that a goods deficit has an adverse effect on manufacturing jobs? Or put another way, that selling more American goods to other countries would result in the need to manufacture more goods, hence more manufacturing jobs for U.S. workers? That, to me, is one reason a goods deficit is not desireable. In order to be able to sell goods to other countries, we have to be competitive with other countries selling goods. So the solution is to be more competitive, right? From some reading, manufacturing in the U.S. has been increasing over the last several years, but it has also become increasingly automated, so the number of manufacturing jobs hasn't kept pace. Also, many U.S. companies manufacture overseas where labor is cheaper. So from the standpoint of being a leader in manufacturing, maybe it's not so great for jobs. I don't know what else we can do for the goods trade deficit, other than open up some black market sweat shops. Plus, our unemployment rate is very low. Not sure why the "more jobs, hundreds of thousands of new jobs" mantra is still being pushed as a good thing. Also, if you look back at both of the pieces I linked, since we have a goods trade deficit, partially offset by a services surplus, the balance of the two is made up in capital (and YES some debt) which is invested in American companies. So, if a particular manufacturing company in the U.S. is a good investment, they'd get an influx of capital, which is needed for growth.
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Post by robeiae on Aug 3, 2018 8:42:18 GMT -5
You have not addressed any of my points above. My quest for the "meaning" of trade deficits, from the beginning, has been whether they are in fact "bad" economically, and if so, why. My increasing certainty is after having read both your posts and other articles on it. And for all your hinting at ignorance or stupidity on my part, I dare say I have a firmer grasp on general financial principles than the average person, including you. I really don't want to keep going over the same things, again, and again, and again. But I'll note this: if trade deficits are never bad and, indeed, are always good--which seems to be what your position has become--does that mean Germany and other countries with trade surpluses are fucked? I mean, their situations must suck mightily, because applying how you think the balance of payments is reached, no one must be interested in investing any money in the German economy and it must be struggling. Nope. I think you're arguing with positions that I'm not taking. For instance, you seem to think that I'm arguing that the trade deficit is the cause of personal debt. I'm not. See, I don't have anything to say about this, because none of it has anything to do with what I'm saying. I'm not making the claims that you imagine I am. I do. It's just that it's not a good one, mostly because you're arguing against propositions that I'm not actually making. So look, one last time: I agree with the idea that trade deficits are neither automatically bad things, nor are they automatically good things (ditto for surpluses). Such a judgment--good or bad, helping a country's economy or hurting--requires more. It requires a much more complete picture of the current and past conditions and trends of the country. So. 1) Is the increasing US trade deficit a good thing or a bad thing? 2) Is it okay for it to keep increasing ( here it is, year to year), or would it be better to see it shrink? For 1): Imo, the increasing trade deficit is not a good thing over the long term, because this increase is being driven by US debt (again, at every level). And there's also something of a feedback loop in here, as the deficit is partly balanced by the sale of US securities to foreign governments like China that increase the debt service over the long term. For 2) Obviously, I think it would be better if the trade deficit didn't keep increasing, and indeed if it started to shrink. And that's because I don't think this dynamic is sustainable, going forward: a debt-driven consumer economy and debt-ridden government who buy way more than they can afford and who are dependent on foreign "investment" to stay afloat. But none of this means that I think the trade deficit is just another metric that can be manipulated to achieve some goal (like reducing debt, or the like). And that's because I don't think this is true of any metric. We're dealing with an open, complex system. Nonetheless, the debt that is financing the trade deficit is a huge problem that needs to be addressed, at both the government and individual level. So until that happens, an increasing trade deficit is not a Good Thing in my view. It can't possibly be because--as I have explained--it's increasing the debt over time at the government level. But I'm actually all for open markets, for essentially free trade. If the trade deficit wasn't being financed by debt, it wouldn't be a problem, at all. That's the rub. Because there's no simple solution in this regard. Indeed, the only solution may be an impossible one (getting rid of all this debt, having a government and citizenry that doesn't spend more than it takes in, year in and year out). And if that's the case, all we can do is keep going forward, until it all comes crashing down.
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