3 ms·

> models of international trade generally assume that trade will balance itself over time Do they? How could trade deficit between US and a small country like

> models of international trade generally assume that trade will balance itself over time Do they? How could trade deficit between US and a small country like Madagascar ever balance out to zero, and why is that desirable? This looks nonsensical to me.

z2 2y ago
As controversial as Larry Summers might be himself, he's got a good quote: "It’s now clear that the [...] Administration computed reciprocal tariffs without using tariff data. This is to economics what creationism is to biology, astrology is to astronomy, or RFK thought is to vaccine science."
throwup238 2y ago
We want to annex all of the vanilla beans. In return, they will import Disney cartoons about their own island.
gpm 2y ago
Simple ones probably do. Because a small country has both less buyers and less sellers. Consider the people of the world to be a graph. Each person is a vertex, between each pair of people is a directed edge indicating how much they bought/sold from the other person. Assume every edge is selected independently at random. Consider a country to be a set of people. The average weight of the edges crossing in/out of the set (treating incoming edges as positive and outgoing edges as negative) will be zero no matter the size of the set. --- The bizarre part here is that they went from "models often assume this" to "it's something we should attempt to force to be true via taxes". Trying to force the world to fit your known to be incorrect model assumptions... doesn't make any sense as a policy.
- cyberge99 2y ago
  Yes but in your example resources are not weighted. The US has far more natural resources than say, Chiquita.
mr_toad 2y ago
Current account (export and import) deficits are offset by the capital account, which is trade in assets, including financial assets (or actual cash). The two balance each other out. You can run a deficit by borrowing or by selling assets, but you can’t do that forever.
- kemotep 2y ago
  I think the concept of a budget deficit and a trade deficit is being mixed up.
  - rayiner 2y ago
    If you have a trade defect with everyone, like the US does, you have a current accounts deficit: https://www.investopedia.com/ask/answers/010715/what-difference-between-current-account-deficit-and-trade-deficit.asp https://www.investopedia.com/ask/answers/010715/what-differe.... It means you’re perpetually borrowing to finance consumption. That’s why the Madagascar example misses the point. There’s a handful of large trading partners that account for our overall trade deficit. Everyone else is just being swept in.
    - kemotep 2y ago
      But I don’t have debt and I have a trade deficit with every store I buy things from. Like I get that household finances and Country finances don’t map 1 to 1 but like way too much of what I am reading coming from the Trump administration and about international trade and everything seems contradictory. We sell things to ourselves. Is Ohio going bankrupt buying Californian Wines? If States could enact tariffs would it make sense for Ohio to tariff imports from California then?
      - rayiner 2y ago
        The problem with your analogy is that the US doesn’t have a trade deficit with just one country. It has a trade deficit with everyone, which creates a current account deficit. In your analogy, you have trade surplus with your employer.
rayiner 2y ago
The administration absolutely does not care about Madagascar or those smaller countries. This is about the trade deficits with the EU, Japan, and China. The EU is a big, diversified economy and maintains basically a zero trade balance (small surplus relative to the economy). But applying an across the board principle obviously is politically easier.
- throw0101d 2y ago
  > This is about the trade deficits with the EU, Japan, and China. And trade deficits are important because… ? * https://www.noahpinion.blog/p/trade-deficits-do-not-make-a-country https://www.noahpinion.blog/p/trade-deficits-do-not-make-a-c... > The Swiss make the watches and the Italians make the pasta. > If the watches cost more than the pasta it doesn't mean the Italians are getting "ripped off". It just means they are optimizing their comparative skills wisely. * https://twitter.com/cullenroche/status/1908229255026397574 https://twitter.com/cullenroche/status/1908229255026397574
  - rayiner 2y ago
    Noah’s article has a whole headline that says: > A trade deficit is like buying stuff with a credit card Yeah—that’s exactly why it’s bad! That’s why very smart and responsible countries like Japan and Germany seek to maintain trade surpluses.
    - throw0101d 2y ago
      >> A trade deficit is like buying stuff with a credit card > Yeah—that’s exactly why it’s bad! That’s why very smart and responsible countries like Japan and Germany seek to maintain trade surpluses. Yeah, at the end of that section: > Does using your credit card to buy a washing machine from Target mean that Target has ripped you off? No. Does it make you poorer when you use your credit card to buy a washing machine from Target? Nope. You now have less money, but you have more stuff. In just the same way, a trade deficit means that the U.S. has less money and more stuff. It does not mean America is poorer, or that it has been ripped off by foreigners. People in the US seem to want to save less but have more stuff. Other countries have different priorities. Neither having more stuff, nor having more money, is "better" in an 'objective' sense, but relative to what you want out of life. If the Japanese and/or Germans are happy saving, then good for them; if Americans are happy spending, then good for them too. And a reminder: the main point of money is not to have money but to use it to live life. Certainly you should have an emergency fund and save for retirement, but having a large number in some account is not useful. Money was invented to make the exchange of goods and services easier, so spending money is the point of money. You don't celebrate having a movie or concert ticket for the sake of having the ticket, but for the sake of being able to go to the show. The moneys are the tickets to be able to see the show of life.
bitshiftfaced 2y ago
From what I can see, Madagascar in 2024 had a trade deficit with the US of about $700 million and had total imports of about $5.4 billion. It's feasible that they might prefer to transfer 13%[0] of their current imports to sources from the USA even if it's more expensive since being able to export more cheaply to the USA would be a net gain. 0. Actually less than this since there's a floor of a 10% tariffs. They can have deficit/imports of up to 20% before they incur a penalty.
- ricardobeat 2y ago
  That's simply rationalizing the use of tariffs as leverage for trade deals, and only makes it desirable to the US. But that was not the question. A poorer country that exports raw goods does not necessarily have the spending power (or need) to import the same amount of goods - having a trade surplus is desirable for them, and not necessarily bad for the US.
  - bitshiftfaced 2y ago
    Oh I see. To you earlier question, I believe neoclassical economics assumed international trade would tend towards balance in the long run due to market forces.

z2 2y ago

As controversial as Larry Summers might be himself, he's got a good quote: "It’s now clear that the [...] Administration computed reciprocal tariffs without using tariff data. This is to economics what creationism is to biology, astrology is to astronomy, or RFK thought is to vaccine science."

throwup238 2y ago

We want to annex all of the vanilla beans. In return, they will import Disney cartoons about their own island.

gpm 2y ago

Simple ones probably do. Because a small country has both less buyers and less sellers. Consider the people of the world to be a graph. Each person is a vertex, between each pair of people is a directed edge indicating how much they bought/sold from the other person. Assume every edge is selected independently at random. Consider a country to be a set of people. The average weight of the edges crossing in/out of the set (treating incoming edges as positive and outgoing edges as negative) will be zero no matter the size of the set. --- The bizarre part here is that they went from "models often assume this" to "it's something we should attempt to force to be true via taxes". Trying to force the world to fit your known to be incorrect model assumptions... doesn't make any sense as a policy.

cyberge99 2y ago
Yes but in your example resources are not weighted. The US has far more natural resources than say, Chiquita.

mr_toad 2y ago

Current account (export and import) deficits are offset by the capital account, which is trade in assets, including financial assets (or actual cash). The two balance each other out. You can run a deficit by borrowing or by selling assets, but you can’t do that forever.

kemotep 2y ago
I think the concept of a budget deficit and a trade deficit is being mixed up.
- rayiner 2y ago
  If you have a trade defect with everyone, like the US does, you have a current accounts deficit: https://www.investopedia.com/ask/answers/010715/what-difference-between-current-account-deficit-and-trade-deficit.asp https://www.investopedia.com/ask/answers/010715/what-differe.... It means you’re perpetually borrowing to finance consumption. That’s why the Madagascar example misses the point. There’s a handful of large trading partners that account for our overall trade deficit. Everyone else is just being swept in.
  - kemotep 2y ago
    But I don’t have debt and I have a trade deficit with every store I buy things from. Like I get that household finances and Country finances don’t map 1 to 1 but like way too much of what I am reading coming from the Trump administration and about international trade and everything seems contradictory. We sell things to ourselves. Is Ohio going bankrupt buying Californian Wines? If States could enact tariffs would it make sense for Ohio to tariff imports from California then?
    - rayiner 2y ago
      The problem with your analogy is that the US doesn’t have a trade deficit with just one country. It has a trade deficit with everyone, which creates a current account deficit. In your analogy, you have trade surplus with your employer.

rayiner 2y ago

The administration absolutely does not care about Madagascar or those smaller countries. This is about the trade deficits with the EU, Japan, and China. The EU is a big, diversified economy and maintains basically a zero trade balance (small surplus relative to the economy). But applying an across the board principle obviously is politically easier.

throw0101d 2y ago
> This is about the trade deficits with the EU, Japan, and China. And trade deficits are important because… ? * https://www.noahpinion.blog/p/trade-deficits-do-not-make-a-country https://www.noahpinion.blog/p/trade-deficits-do-not-make-a-c... > The Swiss make the watches and the Italians make the pasta. > If the watches cost more than the pasta it doesn't mean the Italians are getting "ripped off". It just means they are optimizing their comparative skills wisely. * https://twitter.com/cullenroche/status/1908229255026397574 https://twitter.com/cullenroche/status/1908229255026397574
- rayiner 2y ago
  Noah’s article has a whole headline that says: > A trade deficit is like buying stuff with a credit card Yeah—that’s exactly why it’s bad! That’s why very smart and responsible countries like Japan and Germany seek to maintain trade surpluses.
  - throw0101d 2y ago
    >> A trade deficit is like buying stuff with a credit card > Yeah—that’s exactly why it’s bad! That’s why very smart and responsible countries like Japan and Germany seek to maintain trade surpluses. Yeah, at the end of that section: > Does using your credit card to buy a washing machine from Target mean that Target has ripped you off? No. Does it make you poorer when you use your credit card to buy a washing machine from Target? Nope. You now have less money, but you have more stuff. In just the same way, a trade deficit means that the U.S. has less money and more stuff. It does not mean America is poorer, or that it has been ripped off by foreigners. People in the US seem to want to save less but have more stuff. Other countries have different priorities. Neither having more stuff, nor having more money, is "better" in an 'objective' sense, but relative to what you want out of life. If the Japanese and/or Germans are happy saving, then good for them; if Americans are happy spending, then good for them too. And a reminder: the main point of money is not to have money but to use it to live life. Certainly you should have an emergency fund and save for retirement, but having a large number in some account is not useful. Money was invented to make the exchange of goods and services easier, so spending money is the point of money. You don't celebrate having a movie or concert ticket for the sake of having the ticket, but for the sake of being able to go to the show. The moneys are the tickets to be able to see the show of life.

bitshiftfaced 2y ago

From what I can see, Madagascar in 2024 had a trade deficit with the US of about $700 million and had total imports of about $5.4 billion. It's feasible that they might prefer to transfer 13%[0] of their current imports to sources from the USA even if it's more expensive since being able to export more cheaply to the USA would be a net gain. 0. Actually less than this since there's a floor of a 10% tariffs. They can have deficit/imports of up to 20% before they incur a penalty.

ricardobeat 2y ago
That's simply rationalizing the use of tariffs as leverage for trade deals, and only makes it desirable to the US. But that was not the question. A poorer country that exports raw goods does not necessarily have the spending power (or need) to import the same amount of goods - having a trade surplus is desirable for them, and not necessarily bad for the US.
- bitshiftfaced 2y ago
  Oh I see. To you earlier question, I believe neoclassical economics assumed international trade would tend towards balance in the long run due to market forces.