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Trade deficits aren't subsidies. All it means is that there's a greater volume of home-currency-denominated investment in the "deficit" country than there are h

Trade deficits aren't subsidies. All it means is that there's a greater volume of home-currency-denominated investment in the "deficit" country than there are home-currency-denominated exports. So, in the case of the US, there's a net positive capital inflow - dollar-denominated investment. Dollar payments balance, as they must: https://3.bp.blogspot.com/-ahpWrFO8WFM/TZkyZmhwGLI/AAAAAAAAPKE/Tm_wnRXSOvs/s1600/bp.jpg https://3.bp.blogspot.com/-ahpWrFO8WFM/TZkyZmhwGLI/AAAAAAAAP... Trade deficits are a meaningless thing to worry about. They're not actual deficits of any kind, and they don't even accurately measure trade, since they generally don't include services or the chains of value-adding.

rrggrr 10y ago
> Trade deficits are a meaningless thing to worry about. Manifestly wrong. Large trade deficits are unsustainable for three reasons. They cause private and public debt bubbles in the defect nation. They cause unemployment and underemployment in the defect nation. And, they can cause systemic inefficiencies in the surplus nations that lead to economic and social problems at home, and deflation abroad.
- snrplfth 10y ago
  Private and public debt bubbles? There's no actual debt or deficit being incurred - it's just using money to pay for goods. We might as well worry that we have a trade deficit with the corner store, or our employer might worry that they have a trade deficit with us. "Trade deficits" are orthogonal to actual debt. And they don't cause unemployment, they just change the composition of employment. Now, if a country resolutely insists on hampering its own economy with cartels and bizarre regulation, then yes, "trade deficits" can reveal some of those weaknesses more prominently, but they were already there. Trade deficits are just a mercantilist phantom, conjured up by counting physical goods crossing a border, carefully not counting services and capital investment, and then claiming that wealth is being "drained". It's like measuring evaporation from a lake (exports), ignoring any and all precipitation (payment for exports), and then claiming that the lake is running dry, without actually measuring the water level (per capita income). "Trade deficits" pretty much always comes down to "foreigners sell us things at a low price, therefore we need to fight them/restrict investment in our economy/make things more expensive for our own consumers". It's never been an actual problem.
  - rrggrr 10y ago
    Here is a proper explanation if you're genuinely curious and not seeking to advance a position out of convenience or bias. http://carnegieendowment.org/chinafinancialmarkets/60358 http://carnegieendowment.org/chinafinancialmarkets/60358
    - snrplfth 10y ago
      I've read it, and it seems to be the same kind of mercantilist thinking that I'm criticizing. It's more of this "take an accounting identity, ignore the effects of one-half of it, bemoan the 'imbalance' of the other half." I mean, you could solve the US 'trade imbalance' by making it extremely hard for foreigners to invest capital in the US. But of course this would have knock-on effects that make it harder for companies and workers in the US to access investment capital. Or you could shut out foreign goods - and ignore the costs of more expensive domestic goods for US consumers. None of this actually benefits people. I see nothing in this article to distinguish it from the historically-always-wrong mercantilism that just kept drawing boundaries around areas and then yelled and shouted whenever more of one particular class of good went in than came out.
      - rrggrr 10y ago
        I give you credit for reading it. Disagree with you utterly, but impressed by your conviction as wrong as it is :-)

rrggrr 10y ago

> Trade deficits are a meaningless thing to worry about. Manifestly wrong. Large trade deficits are unsustainable for three reasons. They cause private and public debt bubbles in the defect nation. They cause unemployment and underemployment in the defect nation. And, they can cause systemic inefficiencies in the surplus nations that lead to economic and social problems at home, and deflation abroad.

snrplfth 10y ago
Private and public debt bubbles? There's no actual debt or deficit being incurred - it's just using money to pay for goods. We might as well worry that we have a trade deficit with the corner store, or our employer might worry that they have a trade deficit with us. "Trade deficits" are orthogonal to actual debt. And they don't cause unemployment, they just change the composition of employment. Now, if a country resolutely insists on hampering its own economy with cartels and bizarre regulation, then yes, "trade deficits" can reveal some of those weaknesses more prominently, but they were already there. Trade deficits are just a mercantilist phantom, conjured up by counting physical goods crossing a border, carefully not counting services and capital investment, and then claiming that wealth is being "drained". It's like measuring evaporation from a lake (exports), ignoring any and all precipitation (payment for exports), and then claiming that the lake is running dry, without actually measuring the water level (per capita income). "Trade deficits" pretty much always comes down to "foreigners sell us things at a low price, therefore we need to fight them/restrict investment in our economy/make things more expensive for our own consumers". It's never been an actual problem.
- rrggrr 10y ago
  Here is a proper explanation if you're genuinely curious and not seeking to advance a position out of convenience or bias. http://carnegieendowment.org/chinafinancialmarkets/60358 http://carnegieendowment.org/chinafinancialmarkets/60358
  - snrplfth 10y ago
    I've read it, and it seems to be the same kind of mercantilist thinking that I'm criticizing. It's more of this "take an accounting identity, ignore the effects of one-half of it, bemoan the 'imbalance' of the other half." I mean, you could solve the US 'trade imbalance' by making it extremely hard for foreigners to invest capital in the US. But of course this would have knock-on effects that make it harder for companies and workers in the US to access investment capital. Or you could shut out foreign goods - and ignore the costs of more expensive domestic goods for US consumers. None of this actually benefits people. I see nothing in this article to distinguish it from the historically-always-wrong mercantilism that just kept drawing boundaries around areas and then yelled and shouted whenever more of one particular class of good went in than came out.
    - rrggrr 10y ago
      I give you credit for reading it. Disagree with you utterly, but impressed by your conviction as wrong as it is :-)