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I think the argument that a large percentage of people in the US need to lower their wages to 'compete' with developing countries is not true, and even making t

I think the argument that a large percentage of people in the US need to lower their wages to 'compete' with developing countries is not true, and even making that argument is more likely to lead to trade barriers erected than wages being lowered. The problem with the simple model of free trade where workers just lose (why pay $10 in the US instead of $2 in Mexico etc) is that they do not pay workers with dollars in Mexico, they pay pesos. The dollars actually stay in the US. What the total effect of free trade is depends on what happens to those dollars. Are they being used to buy US goods, investments, government debt (then what is the government doing) etc.

Latteland 8y ago
Why does it matter that someone pays with dollars and at a certain point that is translatted into pesos. By the way, not all industries work this way, a fair number of them use us dollars (more than just oil). The fact that you pay in pesos eventually means if pesos lose value internationally you could pay them less (but dollar cost is the same). But that's not guaranteed.
- throwaway34241 8y ago
  It matters because the dollars stay in the US and something must happen with them. So it's not like we are just sending them money and getting nothing in return. As soon as they are exchanged for pesos, that means someone else bought dollars and is going to do something with them. Some industries are priced in dollars but the only major country where people actually spend dollars (without exchanging them) is the US. A trade deficit means overall the other country is buying more investments instead of goods. But those investments are in the US. To actually spend the money somewhere else they would need to exchange it again. And those investments in the US aren't inherently a bad thing. If it's just buying US government bonds and the government not doing anything productive with that money it might be a bad thing though.

Latteland 8y ago

Why does it matter that someone pays with dollars and at a certain point that is translatted into pesos. By the way, not all industries work this way, a fair number of them use us dollars (more than just oil). The fact that you pay in pesos eventually means if pesos lose value internationally you could pay them less (but dollar cost is the same). But that's not guaranteed.

throwaway34241 8y ago
It matters because the dollars stay in the US and something must happen with them. So it's not like we are just sending them money and getting nothing in return. As soon as they are exchanged for pesos, that means someone else bought dollars and is going to do something with them. Some industries are priced in dollars but the only major country where people actually spend dollars (without exchanging them) is the US. A trade deficit means overall the other country is buying more investments instead of goods. But those investments are in the US. To actually spend the money somewhere else they would need to exchange it again. And those investments in the US aren't inherently a bad thing. If it's just buying US government bonds and the government not doing anything productive with that money it might be a bad thing though.