4 ms·

Can you elborate on why? I just adjusted your example to what trade deficit (as opposed to trade deficit with another country) actually means.

resters 7y ago
Well, the logical argument is reductio ad absurdum: Suppose the US has a trade deficit over the long term. This means that dollars flow out of the US to other countries and goods come in. How long can this continue? Why would it continue? Anyone wishing to sell goods to Americans must be willing to accept dollars. Why would anyone be willing to accept fiat money with no intrinsic value in exchange for goods? The only reason anyone would do this is if there was a widespread expectation that the dollars would continue to have value in the future. Why would they? Only if there would one day be US exports that would be purchased with these dollars. Those transactions would reduce the trade deficit. So the value of the fiat currency used to buy imported goods hinges upon the eventual redemption of those dollars for American exported goods and services. Sure, there are other uses for the dollars (sources of demand for dollars) in the short or medium term, such as for underwriting capital, speculation, etc., but if the markets didn't expect the dollars to be redeemed, they would not be used to accrue a trade deficit in the first place, since there would be the expectation that they would be useless (valueless) in the future. There is also a pragmatic argument: You can draw a box around a moment in time or a small group of countries and say "the US has a trade deficit and is worse off", but the question then becomes who in the US is worse off. If Americans import foreign manufactured televisions, millions of Americans save money on a TV, and hundreds or thousands (perhaps) don't find employment manufacturing TVs domestically. Also, as a brief tangent, calls for domestic steel manufacturing with the goal of protecting national interest are among the most absurd claims. Bulk steel could be purchased and stockpiled by the government for a tiny fraction of the cost of the protectionism. In essence, enough steel for 500 years of skyscrapers, monorails and aircraft carriers could be purchased for the cost of a few months of tariffs. Economic specialization is what has elevated us out of the stone age. At scale we call this trade. We draw arbitrary boundaries and call them countries and declare "trade deficits", but any suggestion that someone has been harmed must also acknowledge the many others who have benefitted. The current administration has a highly nationalistic rhetorical strategy. Historically, extreme nationalist movements are accompanied by calls for trade protectionism, because the rhetoric sounds good. People who can't find work find it easy to imagine that if only foreign manufactured goods were manufactured domestically, there would be plenty of employment. In reality, the factors that lead to economic specialization are not evenly or fairly distributed. Some nations have more resources, cheaper labor, more skilled labor, better infrastructure, better laws, etc. Production goes to the place where it can occur most efficiently. What's interesting to me about the current administration's nationalistic rhetoric on trade protectionism is that there is no effort to talk about fairness (working conditions, workplace safety, environmental externalities) and a simple focus on dehumanizing foreign people. The anti-China trade rhetoric is another way of saying "those people are beneath us", and it is of course as ugly as the rest of the administration's rhetoric.

resters 7y ago

Well, the logical argument is reductio ad absurdum: Suppose the US has a trade deficit over the long term. This means that dollars flow out of the US to other countries and goods come in. How long can this continue? Why would it continue? Anyone wishing to sell goods to Americans must be willing to accept dollars. Why would anyone be willing to accept fiat money with no intrinsic value in exchange for goods? The only reason anyone would do this is if there was a widespread expectation that the dollars would continue to have value in the future. Why would they? Only if there would one day be US exports that would be purchased with these dollars. Those transactions would reduce the trade deficit. So the value of the fiat currency used to buy imported goods hinges upon the eventual redemption of those dollars for American exported goods and services. Sure, there are other uses for the dollars (sources of demand for dollars) in the short or medium term, such as for underwriting capital, speculation, etc., but if the markets didn't expect the dollars to be redeemed, they would not be used to accrue a trade deficit in the first place, since there would be the expectation that they would be useless (valueless) in the future. There is also a pragmatic argument: You can draw a box around a moment in time or a small group of countries and say "the US has a trade deficit and is worse off", but the question then becomes who in the US is worse off. If Americans import foreign manufactured televisions, millions of Americans save money on a TV, and hundreds or thousands (perhaps) don't find employment manufacturing TVs domestically. Also, as a brief tangent, calls for domestic steel manufacturing with the goal of protecting national interest are among the most absurd claims. Bulk steel could be purchased and stockpiled by the government for a tiny fraction of the cost of the protectionism. In essence, enough steel for 500 years of skyscrapers, monorails and aircraft carriers could be purchased for the cost of a few months of tariffs. Economic specialization is what has elevated us out of the stone age. At scale we call this trade. We draw arbitrary boundaries and call them countries and declare "trade deficits", but any suggestion that someone has been harmed must also acknowledge the many others who have benefitted. The current administration has a highly nationalistic rhetorical strategy. Historically, extreme nationalist movements are accompanied by calls for trade protectionism, because the rhetoric sounds good. People who can't find work find it easy to imagine that if only foreign manufactured goods were manufactured domestically, there would be plenty of employment. In reality, the factors that lead to economic specialization are not evenly or fairly distributed. Some nations have more resources, cheaper labor, more skilled labor, better infrastructure, better laws, etc. Production goes to the place where it can occur most efficiently. What's interesting to me about the current administration's nationalistic rhetoric on trade protectionism is that there is no effort to talk about fairness (working conditions, workplace safety, environmental externalities) and a simple focus on dehumanizing foreign people. The anti-China trade rhetoric is another way of saying "those people are beneath us", and it is of course as ugly as the rest of the administration's rhetoric.