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Why does the U.S. always run a trade deficit?

• blitzar 1y ago
  By "always" they mean since the 1970's of course. More buyers than sellers.
  • itsoktocry 1y ago
    And prior to 1870.
• rayiner 1y ago
  > The saving gap framework helps clarify what trade policies can and can’t do. For example, a free-trade agreement encourages exports, and an industrial policy can foster a re-shoring of production to replace imports. Such policies influence the size and composition of cross-border trade, but the difference between imports and exports is only affected if these policies also change the gap between domestic saving and investment spending. Is there research on the link between the availability of cheap foreign goods and domestic saving and investment? E.g. would people invest more domestically if they could obtain returns making domestically manufactured goods? Doesn’t the availability of cheap Chinese goods arguably suppress domestic investment? E.g. Apple investing tens of billions into its Chinese supply chain. I’d also be curious why the EU doesn’t consistently run trade deficits.
  • ta1243 1y ago
    If iphones were charged with US labor costs then nobody would buy them
    • rayiner 1y ago
      Or we would have automated assembly faster—the investment in which would’ve been counted in domestic investment offsetting the trade deficit, right? I’m trying to verify my mental model of what’s going on.
      • chii 1y ago
        the assumption being that the automated assembly is going to be price competitive with the manual assembly. If this is the case, why doesn't it happen with the chinese supply chain? After all, there's no reason not to make it cheaper. The only conclusion you can draw is that the automated assembly will still be more expensive compared to the current manual one.
        • newsclues 1y ago
          Or it would mean the time and cost for tooling would be prohibitive to annual releases, as they would need to sell each refresh for longer. Like car manufacturing where the models are more consistent each year with longer cycles to refresh. I honestly don’t see that as a big issue. It may even be better.
        • Joker_vD 1y ago
          Are you arguing that if something hasn't been invented/adopted yet, then it will never be? Because IIRC the Chinese do invest into attempts to automate the phone assembly. It may not yet be price-competitive today but why not tomorrow?
        • Filligree 1y ago
          It does happen in the chinese supply chain; it's already heavily automated. It's a bit late to try to undercut them using automation.
        • sigmaisaletter 1y ago
          The chain of thought goes like this: -american labour is expensive -because of tariffs (or geopolitics) cheap asian labour unavailable -investment in automation research -first Gen automation is expensive -further research -2nd Gen automation is price-competitive with american labour -iterate n times -Nth Gen automation is price-competitive with asian labour > why doesn't it happen with the chinese supply chain The idea is that because asian labour is so cheap, there is no real incentive to invest in automation research, because everyone knows it won't be price-competitive for long. No idea if that is actually true, but that is the argument.
    • corimaith 1y ago
      iPhones are already heavily overpiced considering how other companies regularly release phones with similar specs at lower prices.
      • conception 1y ago
        Let’s be honest, no one is releasing phone with “similar” specs… https://browser.geekbench.com/mobile-benchmarks https://browser.geekbench.com/mobile-benchmarks Functionality sure maybe but competitors are not hot on apples heels or anything.
        • Brybry 1y ago
          Being honest, Geekbench 6 Single/Multi results vary depending on source and can be picked to fit different narratives. S M iPhone 16 Pro Max 3331 8106 Samsung S25 Ultra 3137 9769 [1] A18 Pro 3582 9089 Snapdragon 8-E 3155 9723 [2] A18 Pro 3452 8572 [parent link] S25 Ultra missing [parent link] SM-S938U 2k-3k 9k+ [3] [1] https://www.phonearena.com/phones/benchmarks/performance https://www.phonearena.com/phones/benchmarks/performance [2] https://nanoreview.net/en/soc-list/rating https://nanoreview.net/en/soc-list/rating [3] https://browser.geekbench.com/search?utf8=%E2%9C%93&q=samsung+SM-S938U https://browser.geekbench.com/search?utf8=%E2%9C%93&q=samsun... [4] https://browser.geekbench.com/search?utf8=%E2%9C%93&q=Apple+A18+Pro https://browser.geekbench.com/search?utf8=%E2%9C%93&q=Apple+...
      • icedchai 1y ago
        iPhones also used to be carrier subsidized. I remember getting a new one for $200 - $300 thanks to AT&T.
        • garciasn 1y ago
          They still are, in the same exact way: with contracts. I haven't paid for an iPhone with cash, ever; I only have to sign a multi-year contract, just like it was in the past. I am currently using an iPhone 16 for 'free' in this way. It's just that people now want the latest and greatest NOW and are willing to pay monthly rates to do so, instead of waiting a few months for whatever carrier deal there is.
    • mc32 1y ago
      Higher end Motorolas were mfg in the US in the early 2000s. It’s possible. Top of the line were ~$700, with inflation that’d afford iPhones. They were top sellers and not niche models.
      • FirmwareBurner 1y ago
        Higher end Nokias were also 100% made in Finland, even the chargers. Companies just wanted that sweet Chinese labor.
        • mc32 1y ago
          I’ve no idea why people downvote the above claims. Here from the Verge: https://www.theverge.com/2013/9/11/4717796/made-in-america-a-look-inside-motorolas-moto-x-factory https://www.theverge.com/2013/9/11/4717796/made-in-america-a... As late as 2014 phones were being made in the US. I believe Nokia in Finland was similar…
    • tonyhart7 1y ago
      "If iphones were charged with US labor costs then nobody would buy them" idk, people pay premium for avocado sandwich a lof of cali folks certainly would do that
      • tzs 1y ago
        For most people who aren't very wealthy there is a huge difference between something making their $10 sandwich become a $20 sandwich and something making their $1000 phone become a $2000 phone. Also, people are generally more flexible with sandwiches. If the $10 sandwich I have once a week goes to $20 I might respond be switching to having that sandwich every other week and get something else on the alternate weeks. That won't work for a phone because I generally replace my phones when the old phone is no longer adequate.
        • vel0city 1y ago
          If I'm buying 3 sandwiches a week most weeks of the year (or similar eating out) that's like 150 meals a year. Adding an extra $10 to that is $1,500. I might get a new phone every 2-3 years. A $1,000 increase in my phone cost is $333-500/yr on average. And honestly if they jump $1,000 I'll probably try even harder to stretch it out another year or more. A $10 sandwich going to $20 is probably going to be far more impactful to my budget than a phone going up $1,000 in price.
      • tonyhart7 1y ago
        idk why people have negative sentiment on this its the same like "health" food product vs industrial food You can have option for product that got manufactured on US soil to support US worker vs cheaper product that manufactured in Asia because cheaper wages in fact European,Asian country do this all the time
    • kylebenzle 1y ago
      Maybe the military could just start forcing people to buy all US made products instead of just our currency?
      • timacles 1y ago
        Trust me they are exploring this
        • ta1243 1y ago
          That's what the UK was doing before WW1, when private army (including warships) from a private British company attacked places like Guangzhou, before the UK government forced their terms of trade on China. History doesn't repeat itself, but it rhymes.
  • corimaith 1y ago
    https://www.federalreserve.gov/boarddocs/speeches/2005/200503102/ https://www.federalreserve.gov/boarddocs/speeches/2005/20050... The Global Saving Glut hypothesis by Bern Bernanke is an interesting argument about how the glut of demand for US financial assets may have been the major factor in creating the housing bubble in 2008.
  • mrweasel 1y ago
    > I’d also be curious why the EU doesn’t consistently run trade deficits. Some EU countries probably do, but because they are smaller economies it seems less critical. Combining the EU economies can hide a Spanish deficit within the German surplus fairly easily. e.g. the German surplus are 10 times higher than the Spanish deficit (if I recall correctly). The EU viewed as a whole, I don't know, maybe due to a very diverse economy, lower overall consumption, lower EU salaries?
    • codingbot3000 1y ago
      See answer above - the EU is less "debt-fueled". But I also think that EU producers are more competitive. The US has a strong tendency towards local monopolies which are bad for export competitiveness.
      • tonyhart7 1y ago
        "The US has a strong tendency towards local monopolies" also the problem is US is one of the largest market in the world, if you can conquer US market. you can pretty much do that elsewhere essentially monopolize an entire world
        • lesuorac 1y ago
          Isn't that just a software thing (if at all)? It's not like Canadian lumber mills conquered the world. Ford F-series isn't the highest selling car in the world.
          • esseph 1y ago
            How many countries are US fast food franchises in? Music? Movies? Bleed over from US social media? There's something to that, I think.
            • lesuorac 1y ago
              The original comment was "if you can conquer US market. you can pretty much do that elsewhere". US Fast Food has not conquered street vendors. A quick look at a French theater [1] shows 2 American movies, 2 Spanish movies, and 1 French movie. French culture might be dominated by foreigners but 2/5 isn't domination. Movies also have a similar network effect to software where it's preferable to see the same movies as other people to have a talking point. Social media (WhatsApp included in here) is probably accurate but that's software which I already gave an out to. > There's something to that, I think. There's definitely something to making a compelling product that takes over a local market being desirable by a foreign market. I just don't think there's something special about winning say the US car market over winning the Chinese car market (There is something special about winning the US/Chinese market over winning the Irish market though -- Size). However, for many goods that aren't protected by a monopoly a local supplier is going to be able to undercut your distribution costs. That's why Finish McDonald's uses Italian beef [2]. [1]: https://www.ugc.fr/films.html https://www.ugc.fr/films.html [2]: https://www.mcdonalds.com/fi/fi-fi/tuote/pepper-n-bacon.html https://www.mcdonalds.com/fi/fi-fi/tuote/pepper-n-bacon.html
  • GordonAShumway 1y ago
    > why the EU doesn’t consistently run trade deficits. It’s because, comparatively, the EU doesn’t run as massive fiscal deficits, nor is the EUR the primary reserve currency. Keep in mind that what the fed article is calling a “saving gap” is really more of a fiscal gap that been plugged by US Treasuries.
    • atq2119 1y ago
      > Keep in mind that what the fed article is calling a “saving gap” is really more of a fiscal gap that been plugged by US Treasuries. They're two sides of the same coin, but the levers of control and causality aren't symmetric. In particular, the US government doesn't have direct control over the savings behaviour of anybody, especially not of people outside the US. That's why most policies that aim to reduce the US government deficit are bound to either fail or have undesirable negative effect elsewhere.
    • User23 1y ago
      More precisely it’s because the EU has no fiscal unified fiscal policy. Every member is a currency user of a foreign currency it must acquire from the ECB. Wynne Godley explained this all nicely in Maastricht and All That.
  • skybrian 1y ago
    A country that exports goods to the US earns dollars that can be invested in the US. So, one way to look at it is that American consumer spending funds foreign investment in the US. This consumer spending could alternatively fund US exports, but doesn’t if foreigners prefer to buy US investments. (They might buy Apple stock, for example.) If Americans spent less and invested more, they might own more of these investments themselves, but they also wouldn’t have as much stuff, and foreigners wouldn’t have as much money to invest in the US.
  • wonnage 1y ago
    "Saving" in the accounting identity is just money not spent on consumption. Cheaper imports can increase domestic saving because people now spend less for the same goods. That could then increase domestic investment due to the increased savings. Or the same situation could reduce savings, if people increasing consumption because the imports are so cheap. The accounting identity doesn't explain anything other than the mathematical truth that the money needs to add up in the end. Savings are not inherently good, deficits are not inherently bad
• nemomarx 1y ago
  Getting real physical products in exchange for imaginary numbers and services is a good deal? We sell a lot of software?
  • rayiner 1y ago
    Living on a farm and getting three square meals a day is a good deal… until it isn’t.
    • johnisgood 1y ago
      There are always trade offs. I want to live on a farm, but at the same time, I need a relatively quick access to hospitals.
      • rayiner 1y ago
        It’s a joke about short sighted farm animals thinking they have it good not seeing the big picture.
        • johnisgood 1y ago
          Oh! Okay, I understand it now, my bad. :D
        • rightbyte 1y ago
          You need to add "free" to that joke.
  • GordonAShumway 1y ago
    The US runs a $1T surplus in services.
    • logankeenan 1y ago
      Do you have a source for that? Recently, I was trying to understand the trade deficit when consider services, but couldn’t find anything credible
• cjfd 1y ago
  Too much consumption versus production. One component is the ever ballooning government debt. Essentially in 'trade deficit' the thing that is not taken into account is one very big export article of the US. Pieces of paper with 'IOU' written on them. The whole Trump trade war is the completely preposterous thing of spending more in the shop than you can afford and then blaming the shop for taking advantage of you. This is the concept of 'responsibility' as it appears to exist in Mr. Trumps bug ridden brain.
  • corimaith 1y ago
    We don't really know why the US savings rate is low, but we do know more explicitly why the savings rates of those "shops", aka surplus countries is abnormally high, with weak social spending, financial repression, currency manipulation etc. Their manufacturing capacities exceed their domestic consumption to absorb, that is to say, they need export markets to stave off unemployment. Is there not an argument that by the virtue of free capital controls and stronger commitments to free trade, the US is taking the inverse of the exportation of domestic imbalances created by these surplus countries?
    • deleted 1y ago
      [deleted]
    • ta1243 1y ago
      US assets far exceed US debts https://www.federalreserve.gov/releases/z1/20250313/html/recent_developments.htm https://www.federalreserve.gov/releases/z1/20250313/html/rec... If US private assets were used to "pay off" US government debt (much of which is owed to US private asset holders), then Americans would be about as rich as they were in 2020 (with about $140T instead of today's $170T)
    • mr_toad 1y ago
      A distorted housing market that sucks up excess money, keeping interest rates low. Uncap the housing market, free up cash, which will force the Fed to tighten the money supply, freeing investment from the housing market into industry.
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• deleted 1y ago
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• seethishat 1y ago
  More disposable income/debt in the US (in general).
• deleted 1y ago
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• cess11 1y ago
  If one wants more equations one might take a look at https://unequalexchange.org/wp-content/uploads/2023/05/The-Unequal-Exchange-A-summary.pdf https://unequalexchange.org/wp-content/uploads/2023/05/The-U... (PDF), Arghiri Emmanuel summarising some of his writings on unequal exchange.
• candiddevmike 1y ago
  We have a service based economy. Or a debt service based economy.
• deleted 1y ago
  [deleted]
• hunglee2 1y ago
  Using a national currency as the de facto global reserve guarantees a trade deficit for that country. No one else can manufacture USD's, so other countries have to acquire them by shaping their economies to supply goods and services demanded by the US. They can then use these earned dollars to transact with other countries, as the US itself insists they do. For the US, this is a simple trade off - gain massive political influence (and market intelligence - all USD transactions go through US institutions regardless of where those transacting partners are located), at the expense of hollowing out domestic industry and running a deficit in physical goods traded. The solution is a non-national global reserve, calculated on a basket of national currencies. This was Keynes argument at Bretton Woods, but the US would not have it then, and does not want it now.
  • lotsofpulp 1y ago
    The US isn’t forcing anyone else to use USD. People around the world use USD because they are confident it will help them buy products and services they want in the future.
    • kylebenzle 1y ago
      [flagged]
      • sorcerer-mar 1y ago
        > We literally murder people and bomb countries that even joke about not buying and using our worthless currency, Citation needed
        • lumost 1y ago
          There is a common thread in the 1991 gulf conflict that Iraq was going to sell oil in alternative currencies. The entire 1991 conflict is actually quite confusing, the majority western cold war apparatus moved to Saudi Arabia to fight the war. There aren't many reasons for why this was done.
• nba456_ 1y ago
  Because most major countries devalue their currency vs the US Dollar, making imports more expensive. Like tariffs.
  • deleted 1y ago
    [deleted]
• metalman 1y ago
  the United Stares biggest import ton for ton was (maybe still), oxygen, it looks to be impossible to search for, as of course the only returns are for profit making companys, not anything so trivial as the atmosphere, which realy just makes the point that the whole concept of money and economy exists in a special bubble, where control of the naritive is what realy counts
• monero-xmr 1y ago
  Countries want American assets - stocks, bonds, property (or abstract ownership in such property). Countries acquire such assets with dollars. They need to get dollars. The acquire dollars by selling things Americans want, typically physical goods as Americans are very good at making the non-physical kind. Unfortunately this incentivizes the never-ending march towards de-industrialization in the USA, as countries earn dollars by making things. They get more efficient every year, and more skilled, making more things, to acquire dollars. That is, I would argue, the single biggest issue animating politics today. It is the argument against globalization, one that has not been solved, and the turmoil in politics across the West with gyrating governments is because voters continue to desire change, and solutions, which no party has yet solved. Arguing that voters are "stupid" is itself stupid. Voters vote the way they vote. It is on elites and politicians to solve the problem of deindustrialization while maintaining the parts of globalization that are beneficial. If you want to wring your hands and blame the voters, that's fine, but in a democracy you should try to win votes and not call people stupid.
• CyanLite2 1y ago
  Because the USA has more money than other countries. People outside the US can't afford to buy our products, but we can afford to buy theirs. This is ideal for many people in the US who want cheap $200 flat screen TVs in every room of their house. This isn't good for unskilled labor in rural parts of America, often in swing states. Manufacturing had always been a place for high school grads to have a decent career. Those days are over with, but politically they decide the election.
  • kylebenzle 1y ago
    Perfect answer but it's also important WHY the USA, "has more money than other countries." It is because we are the only country that prints money at will and forces the rest of the world to use it at gunpoint. The entire basis of our way of life is essentially printing worthless pieces of paper and digital assets and then literally giving the rest of the world the ultimatum we will kill you if you don't buy and use our currency.
    • aaronbaugher 1y ago
      True. It's weird how many of the people who used to know this and protest against it forgot it when the US started using that same power to force their culture onto other countries along with the currency. As an American, I want my country to get out of this obviously unsustainable position of debt-based hegemon. The tricky part is doing so while staying strong enough that the rest of the world doesn't (quite reasonably) decide to come take a piece out of us to get back at us for the decades of bullying.
  • yodsanklai 1y ago
    Unemployment is low in the US though? what type of jobs do high school grads do? and would working in a (let say) doll factory be a better job for them?
    • downut 1y ago
      They move to where the jobs are. And the small town where they got their schooling hollows out.
• roenxi 1y ago
  > The saving gap perspective tells a contrary story. Investment spending would have been lower if not for the United States being able to borrow from the rest of the world. One can argue that this funding raised the economy’s productive capacity from what it would have been otherwise. This sounds backwards, I suspect he's being a bit sloppy when he says that. To sustain the trade deficit it was necessary to enormously increase China's productive capacity so that they could build the goods that get shipped to the US. If the US wasn't running a trade deficit the number in the statistics might have been lower, but it is quite likely that the amount of productive capital actually built in the US would have increased and they might have the same amount of real stuff at the end of the day. They could have built a similar amount of production in the US, for example, instead of importing. The accounting identity for that might be a lower number but that doesn't immediately tell us anything about what the real outcome would have looked like. It is like the situation where nominally China's economy is nominally smaller than the US's, even though as far as the economists can tell China produces more actual stuff. Accounting identities are so basic that they abstract out a lot of important detail vis a vis what an outcome looks like on the ground. Accounting identities always hold, so any situation that can theoretically occur will have a valid accounting identity. It doesn't make sense to rank outcomes by how high investment spending is, it is important to know what real changes would occur. Which identities can't tell us because they are general. Obviously he is technically correct that he can argue that, but it is insinuating a relationship. This stuff is the bane of central planners, it is nearly impossible to tell in the abstract whether a change in accounting identities was good or bad for productive capacity.
  • JackYoustra 1y ago
    > They could have built a similar amount of production in the US, for example, instead of importing. They could not. If they could've, why wouldn't they? Companies, all else equal, have an enormous preference to colocate supply with HQ or with demand, and both are in the US. They could not because labor was so much more expensive that if you can use cheap capital but it takes 5x the labor you should make that trade and the world will be so much richer because the labor would otherwise be completely unused. The only way around this is to liberalize migration. This is preferable! Liberalizing migration would also let us escape the terrible cost disease we've been experiencing, but instead we liberalized goods only and now people are confused about why goods are so cheap but human-intensive services (restaurants, education, healthcare, etc) are so expensive.
• m00dy 1y ago
  To maintain a global reserve currency, US must typically run a trade deficit to supply the world with enough of its currency for international trade and finance
• c-linkage 1y ago
  I've always disliked economics because it never seems to make much sense. The first equation in the article -- the basis on which the entire premise rests -- just feels wrong. > Spending is either on the consumption of goods and services or investment spending on equipment, structures, and intellectual property products. Income is allocated to either consumption or to saving by households, businesses, and government. In a closed economy, spending equals income—that is, the sum of consumption and saving equals the sum of consumption and investment spending. > Spending (Consumption + Investment Spending) = Income (Consumption + Saving) > Because consumption drops out on both sides of the equation, investment spending equals domestic saving in the economy. This makes sense: the funds available to invest in productive projects have to come from domestic savers. It _doesn't_ make sense. How is consumption on the income side of the equation? And even if that somehow did make sense, who is to say the consumption on the income side is the same as the consumption on the spending side such that they balance out? Saving is deferred spending, meaning money is set aside temporarily. One might think of this like a "cash queue" where the velocity of money slows down for a while. Is the assumption that all saving takes place in banks where banks can lend it out? If I stuff cash in a mattress (saving), how can that cash be used for investing? A more realistic version might look like this: (fast) Income --+--------------+-> Spending --+--> Consumption ^ | | | | +--> Saving >--+ | | (slow) | | v +---------------------- Investment and Production This model involves time, but apparently economists only like models that incorporate addition and subtraction. EDIT: If I'm asking questions, saying I don't understand, and offering a counter-model, doesn't that count as adding to the discussion? If I'm operating under some misunderstanding, there are certainly others who have the same misunderstanding but didn't speak up.
  • neximo64 1y ago
    So what's negative savings in this model? Money you get temporarily and use to increase income?
  • roenxi 1y ago
    Klitgaard is talking about accounting, ie, instantaneous currency exchanges where, by definition, the gain on one side of the exchange has to equal the outlay on the other. Your model doesn't look like an accounting model; I suspect you want to talk about something different from what he is talking about - and that you want to talk bout policy implications rather than truisms (which is a good instinct; just not what economists care about when they sit down to talk accounting identities).
• standardUser 1y ago
  I wish someone would explain to Trump that decades of low tariffs and trade deficits is what has (had) cemented the US at the center of global trade, with all of the many benefits that comes with. Getting the rest of the world on board with the US-centric economic order has been THE American project of the last 80 years, it's been astoundingly successful, and Trump appears intent on ending it.
  • padjo 1y ago
    It’s been quite amusing to hear him describe the system America set up for its own benefit as being ripped off by the rest of the world. What a victim complex.
  • dboreham 1y ago
    There's no explaining to Trump. He's a willful moron. Dunning Kruger personified.
  • alexandre_m 1y ago
    Trump tariffs are a leverage to make better international trade deals. They were always meant to be temporary.
• ljosifov 1y ago
  Because there are 1) willing exporters of US dollars USD (the US federal government USG ultimately, and US citizens in the final analysis); and 2) willing users of USD - us non-US-ian people around the world. When I sell stuff to someone in the UK, then pounds are fine as means of exchange. When I sell the same someone around the world, then the transaction not being domestic, the cash part that is 1/2 of it (or 1/4 if you want to look at it in a way of transaction = quartet of {stuff,cash,buyer,seller}) and it can be in any currency of any country. It helps if it is the country of the buyer or the seller, but in general it is neither. I prefer US Dollar to Zongoan Vonga, b/c: 1) USG typically does not devalue their USD much, I don't have to rush to exchange the USD for something else. Or if you want - most others devalue theirs more. 2) USG has not deleted and re-issued their USD even once so far afaik. Other countries do it more often. 3) Everyone else uses USD already. It's easier if it's one currency sufficing for all trade. 4) Often I don't produce oil, and oil is easiest to pay by with USD. Not impossible with others, just more difficult. 5) US banks allow me to hold USD in accounts outside of US. They don't ban me to take the USD in- or out- of US. 6) With USD in hand I can buy lots of stuff US produces, plus I can buy US assets - property, financial assets etc. US does not discriminate against me johnny-the-foreigner much, they are mostly relaxed in that respect. Other countries have all manner of rules that amount to: they'll basically steal their currency off you, or make it worthless to you by making you unable to claim the goods & services that are nominally sold in that currency. Before people pipe in how US is terrible in this and that - above is all *relative* to all other options all other currencies available. This is from to top of my head, I'm sure I made some error and there is more.
  • Carioca 1y ago
    > USG has not deleted and re-issued their USD even once so far afaik. Other countries do it more often. Interesting side note: they did it once, just after the ratification of the US Constitution. The Revolutionary War was funded in some sense by devaluing the Continental Currency of the time, denominated in "Dollars". You could argue that the "US Dollar" only came to being with the coinage act of 1792, but as a Brazilian I'd say "Potay-to, Potah-to"
  • deleted 1y ago
    [deleted]
• massysett 1y ago
  “deficits are also due to a persistent shortfall in domestic saving that requires funds from abroad to finance domestic investment spending.” But why isn’t it: deficits are due to a persistent surplus in funds from abroad to finance domestic investment, perhaps because the economy produces high returns and welcomes foreign investment?
• dec0dedab0de 1y ago
  I always thought the plan was we give them pieces of paper for their stuff. Then if we ever needed to we could say those pieces of paper(or bits in a computer) are no longer worth anything unless you're a citizen. But I had a bunch of gift certificates for ChiChis when they went out of business, and I have been jaded to this sort of thing ever since.
  • alexb_ 1y ago
    Why on earth would we ever do that? That's a nonsensical proposal that would immediately make an immense amount of people poor (while also being hostile to so-called foreigners for no reason)
    • dec0dedab0de 1y ago
      Well I purposely wrote it in a hand-wavy immature way because I don't really understand it. But I did say "if we ever needed to." So whatever the equivalent of declaring bankruptcy is for a country. Though I would like to amend my nonsense from "a citizen" to "actually in the country" I am imagining cutting off foreign governments and oligarchs, not humans that are actually living here. Basically, if there was a bad war or something, and we needed to cut ties with most of the world. It's better to be left with the goods than the cash. Because cash has no intrinsic value.
  • erulabs 1y ago
    You're going a bit far with "no longer worth anything" but indeed, if the entire world holds a particular nation-state's currency, and uses it to exchange goods and pay down debts, then it gives that nation-state tremendous power. Printing dollars is often considered a tax on dollar-holders: I print dollars, your dollars become less valuable as my new dollars are circulated into the market. Effectively, this means the global reserve currency's nation-state can impose a tax on the world, instead of just on its citizens.
• tiffanyh 1y ago
  Can someone clear up if "services" are included. I read quite often claims that state if services were included, the US would be in a trade surplus. But in my own rudimentary research, it appears services are in fact included. Can someone confirm.
  • jihadjihad 1y ago
    They are included. The US typically runs a trade deficit in goods and a surplus in services, but it can change [0]. 0: https://tradingeconomics.com/united-states/balance-of-trade/news/453736 https://tradingeconomics.com/united-states/balance-of-trade/...
  • corimaith 1y ago
    The Trade Balance definition is murky depending on who you ask, it's better to use the Current Account Balance that includes trade balance amongst other things as an indicator of net flows. The Current Account does explicitly include goods & services, and the US is running a hefty deficit today.
  • mtoner23 1y ago
    Yes it includes services and we still run a deficit. Trump's definition though does exclude services which leads to the confusion. In services on its own we run a surplus but it doesn't make up for the larger goods deficit
• FuriouslyAdrift 1y ago
  "Always" being since 1977... prior to that we ran a surplus most years.
• mpweiher 1y ago
  Because it can.
• phkahler 1y ago
  From TFA: Spending (Consumption + Investment Spending) = Income (Consumption + Saving) so they conclude Savings = Investment Spending How does savings become investment spending? Is that through borrowing? Who says borrowing is used for investment? Sure, it's not a great idea to borrow to spend but even corporations sometimes (do stupid things like) borrow to pay dividends which is not investment.
  • wbl 1y ago
    Every liability is an asset on another ledger.
  • hrwvjigegby 1y ago
    I also did not understand this. It seems that “consumption” has different meanings on either side of the equals sign.
  • marcosdumay 1y ago
    To explain the sibling that came in accounting jargon, money by its very nature only exists by lending. You can't have your number on your savings account if it wasn't lent to somebody first.
  • owenversteeg 1y ago
    So, first of all, that’s an economics formula: they tend to be extreme simplifications to demonstrate a relationship between variables. Of course, that means they’re often wrong or useless. Sort of like if all physics formulas were “cow diameter=(food-waste)/2” or “car velocity=gas pedal depth-brake pedal depth.” Sometimes economists jokingly call it the “dismal science”; what they don’t mention is that the term came from a paper arguing that slavery was superior to abolition - an argument made with many of the same reasoning errors, oversimplifications and lack of perspective that clouds modern economics. Our modern sciences are not quite as evolved as we would like to believe. - - - Now, to your question: this is an oversimplification, but most money that’s not in a mattress somewhere is being lent out (invested.) If I have $500 in a bank account, my bank will turn around and lend my $500 to Bob’s Construction Corp or to Mary for a car loan or whatever. In practice things are a lot more complex, but the portion of money that’s sitting still in a mattress or a vault is fairly small. This means that if I get a dividend, money is moved from one bank account to the next, and the amount of investment doesn’t change.
• elzbardico 1y ago
  Why would you not if you don't incur in external debt doing so? The real wealth is not dollars or pounds or whatever, the real wealth is goods and services. Having access to goods and service is what gives you a better living standard, the money is just a way to exchange them and to store value. The US has the privilege of having high international demand for its currency, as it is the default global reserve currency. Of course, it incurs some costs, like having to have the most powerful military in the world, being implicitly responsible for making sure navigation waters are free and unimpeded for commerce, and having to try to keep the powder keg from where most of the energy that runs the world comes from, the middle east, from exploding. In exchange, if you want more oil? more steel? more children toys? more paint? more chips? You can just use your dollars to buy it, and thus making sure your citizens have access to an unimaginable amount of stuff and services. You can make the world work for you in exchange for dollars. And the world can buy your advanced tech and services with those dollars, and can use those dollars to also buy things they need from other countries without a lot of the complication of multiple exchange rates and/or barter schemes. And the best part? Your government can run a lot of programs and not care much about raising taxes, because all those sellers after they use part of the dollars for buying stuff from you and between themselves, will usually have some extra dollars that they are going to save for a rainy day. And what is the best way to keep those dollars safe? Well, buying american treasury bonds! Yeah, you can exaggerate a little bit and end up deindustrializing yourself too much, or go too hard on the consumption frenzy thing and end up with too much trash, environmental issues and household debt. But those are problems that come from the abuse, from the over enthusiastic use of this privilege. And I hope they can be solved (don't ask my how). The system actually works for anyone involved. Nobody is really interested on this de-dolarization stuff as long as America also doesn't abuse its power too much. International commerce is a complex machine, and everybody depends on it, everyone know that changing the current system too much would disrupt international commerce for years. Yeah, in the long run, everything would converge to some new equilibrium, but nobody fucking knows what that equilibrium would be, if it would be stable, and crucially, how much time it would take for it to be achieved. As Keynes taught: In the long run we will be all dead. No country wants their dollar reserves to become dust, especially not china, they sweated a lot to accumulate all those nice treasury bonds.
  • 1y ago
• jongjong 1y ago
  My take is that the US likes to export US dollars... Then wealthy foreigners don't know what to do with them, so they pour them into the NASDAQ and NYSE and fill the pockets of US executives. The US can also leverage its powerful military to coerce artificial demand for USD within foreign nations to prevent it from being redeemed for US labor. Like how the US coerced Australia into a ridiculously expensive AUKUS deal; really, it's just a scheme to prop up USD and has nothing to do with submarines. The US has long been playing a game where they give other nations currency that it prints out of nothing on the pretext that this currency can be redeemed for something of real value, but then goes to great lengths to ensure that those foreign nations never actually redeem the currency. This is the 1971 gold crisis in a nutshell. Now the trade deficit in fiat money is just a continuation of this scheme... Backed by even less value. That's why it feels like western economies are being hollowed out. The US economy has been hollowed out and taking its allies down with it. It's kind of ridiculous how much backlash Trump was getting for trying to do something that is both sensible and necessary. To restore the real economy.
  • jajko 1y ago
    Its not what we is trying to do (at least in official carefully formulated and team-vetted PR statements), but how he is doing it. None of his official big claims were ever realized - wall in Mexico anybody? End of Ukraine war in 24h instead of continuous asslicking of puttin'? Wanting to improve something and then doing active steps towards damage and destruction because he is a) brainwashed in 80s in Moscow aka russian agent Krasnov; b) arrogant corrupt fool doing insider shorts all the time and taking bribes officially left and right; c) as mentioned above Dunning-Kruger effect example par excellence in the wild.
• jleyank 1y ago
  Because US-ians want to buy cheap sh*t in Walmart. On the whole, they seem to prefer cheap to durable/costs more. So USD flow to places with cheaper goods and then flow back as investments.
  • sunaookami 1y ago
    More expensive hasn't meant "more durable/reliable" for years now.
    • herbst 1y ago
      Not for everything, but in Europe we still value this kind of culture and there are still many examples where it's true. We spend a lot more on food for example, and half of the US produce is basically illegal here because of the low quality.
• obblekk 1y ago
  This is incredibly well written. The oil example is very compelling for import substitution. And the covid example is interesting in showing the savings rate only went up as an offset of gov spending. I'd love to see a follow up on (a) is it important for the US to increase domestic savings and (b) what are the best policies to do so, and why are they the best? I imagine blanket tariffs might actually increase the savings rate because they increase the cost of importing all goods when the domestic alternatives are either inferior or more expensive. But I'm curious if they are the best way to achieve the savings goal.
  • tastyfreeze 1y ago
    The only policy that will increase savings rate is a stable or depreciating currency. People are incentivized to use an inflationary currency so they can maintain value.
    • analog31 1y ago
      But they can spend it on stocks, with the hope of maintaining or increasing value. Thats savings, right?
      • tastyfreeze 1y ago
        Who doesn't love the value of their savings being built 100% on the speculation of the public perception of made up things?
        • trgn 1y ago
          savings are a thermodynamical impossibility. real wealth decays (livestock will die, the roof over your head will leak, the bushel of corn will rot, ...). savings must be invested for it to have future value.
          • tastyfreeze 1y ago
            If only there was some material that didn't degrade over time and is hard to produce. Somebody should invent something like that.
• neilwilson 1y ago
  It’s amazing how everybody misses the wood for the trees. Where else is China et al going to sell all the stuff they can produce via their physical overinvestment that was driven by the “export led growth” mantra? There is no untapped source of demand anywhere in the world. There isn’t the income. All they could do is produce less and cause their economies of scale to go into reverse. So instead they sell stuff for accounting entries, which are then used on the asset side of their currency area balance sheet to justify issuing more of their own currency and maintain the circulation. They could, of course, just buy the time currently used for producing excess exports and maintain the circulation in any case. But that would cause lots of people who are hard of accounting to get very upset. So instead they continue with financial mercantilism, allowing everybody there to pretend that they are productively engaged, not metaphorically digging holes and filling them back in again. And that would continue, thanks to those nations supplying the accounting entries and receiving all that nice output, but for somebody getting elected on the US side who actually believes the “lack of saving” line and decided to do something about it. To the loss of the US people. Quite why he think that saying the US isn’t paying enough for Canadian lumber or Chinese cars is good for anybody is beyond me. Another win for the Emperors New Clothes.
  • hedora 1y ago
    There’s plenty of demand for manufactured goods. They can just sell to other markets. US foreign policy is causing demand spikes everywhere. For instance, I read 300M people are projected to starve to death this year. I’m sure China will happily send some of them any excess food, especially since it’s not going to sell it into US any more. I think you mean there are not enough US dollars in those markets. There are at least two easy solutions: (1) Intentionally tank the dollar to increase the relative purchasing power of other countries (which they have probably been doing - someone is, but the “who” is a bit opaque). (2) Stop dealing in US currency entirely and switch the world economy to a new reserve currency. I suspect that the Euro and/or Yuan will win that war, though some argument could be made for crypto. I agree Trump may as well be running around naked at this point. It wouldn’t affect most people’s opinion of his competence or professionalism (domestically or overseas). Anyway: To answer the question that is the article title: Because the US is (was) rich, and has (had) a high but sustainable standard of living.
• tiffanyh 1y ago
  Nationalism I'm surprised to not see nationalism talked about. The topic of trade deficit seems to be less about economic reasons and more about a political movement towards nationalism. This can be seen in Europe right now, as well as India and Brazil - where those respective governments have taken actions that strongly favor local/in-country based companies over foreign. And it appears the current US administration is taking a similar approach.
  • deleted 1y ago
    [deleted]
  • neom 1y ago
    Well: we are about to enter the resurgence of the cold war to the n'th degree, so it makes sense to focus in-country during the ramp up.
• chris_va 1y ago
  The author seems to gloss over the economy not being a zero sum game. As an example, since this is HN: the US creates a ton of startups. Any country that creates new businesses is going to see foreign investment, which on paper leads to a trade deficit. Essentially, the US exports businesses to the rest of the world, but that is not tallied in a 19th century model for the trade balance of goods. However, it's arguably a better export that commoditized goods, from a margin standpoint. Overall these graphs change dramatically based on where the exact geographic boundaries are set and how one defines goods/services/investment. Clearly the US hasn't run out of cash and needed to massively print dollars to cover foreign debt, which would happen very quickly if the system were actually imbalanced.
  • bumby 1y ago
    >However, it's arguably a better export that commoditized goods, from a margin standpoint. Importantly, this is the same dynamic that causes economies to move away from manufacturing towards service-oriented economies. Capitalism is going to chase higher margins, but there should be guardrails that mitigate the negative externalities of such behavior. Else we are left with an eroded middle class, lack of supply chain resilience, disproportionate costs for sectors that can’t chase geo-arbitrage, weakened national security manufacturing capacity, etc.
    • palmotea 1y ago
      No. The US will win the next world war by replying on its advanced capabilities in restaurant work and business consulting.
      • kevin_thibedeau 1y ago
        The US will withhold their advertisements until they capitulate.
      • ijk 1y ago
        You joke, but wars are won on logistics. Famously, the US military can deploy a Burger King anywhere on Earth within 24 hours.
• bparsons 1y ago
  Imagine the contrary. You send out enormous amounts of goods and services, and in exchange, you get less from the rest of the world. You get to pay more for everything, but certain industries get to export more volumes of goods. Is this better?
• mannyv 1y ago
  One reason is that certain goods like IP are excluded from trade figures. I believe that most services are also excluded, but they may have changed that. Transfer pricing screws up the numbers as well.
• Joel_Mckay 1y ago
  The premise is false, and the billions of dollars spent by manufactures every year training foreign-market competitors had increased exponentially since the 1990s. There is no fix for the world moving into its own derivative technologies, and simply abandoning increasingly hostile origin markets. It is a complex situation, and throwing taxes/money at the issue is naive =3
• gorfian_robot 1y ago
  this episode of EconTalk offers a lots more nuance than the posted article https://www.econtalk.org/the-economics-of-tariffs-and-trade-with-doug-irwin/ https://www.econtalk.org/the-economics-of-tariffs-and-trade-...
• some_random 1y ago
  Answer: because "trade deficit" is a 19th century concept that is no longer a complete view into how the modern international financial system works
• legitster 1y ago
  I think this model is useful on a theoretical level, but I think the fundamental relationship being made is backwards. Domestic savings being weak is an outcome, not an input. Trading partners want to sell us goods for no more than our money. If we have nothing they want to buy, then the result will be a surplus of US currency out there. Parking it in US assets drives the cost of debt way down for the US, and the low rates disincentivize domestic savings.
  • JackYoustra 1y ago
    You put forth a bit of a broken model, if there's a surplus of currency abroad we should see our currency depreciate, but instead it's quite strong and has been for a very long time, even as we run persistent, large deficits.
    • legitster 1y ago
      That's exactly true if it was really a surplus. But as it seems foreigner markets are pretty happy with the quantity of dollars out there
• qkhhly 1y ago
  There is no trade deficit if you consider the dollar is the goods that US exports to other countries.
• RGamma 1y ago
  In the news: Everything is out of whack and we're waiting for the next blowup. Who will hold the bags this time?
• Suppafly 1y ago
  I saw a comment here or reddit that basically said that trade deficits aren't real anyway since we're essentially exporting dollars and importing goods. It changed how I thought about these trade deficits a bit. I wasn't overly concerned in the first place, since it seems like a right-wing boogeyman than an actual problem, and also being a country and mostly imports high end finished goods seems like winning at capitalism.
  • silisili 1y ago
    I mean, you can say the same thing about every purchase you make. The potential problem is that you don't have infinity dollars, so if you aren't getting them back, you have to make more.
    • Suppafly 1y ago
      >The potential problem is that you don't have infinity dollars, so if you aren't getting them back, you have to make more. That's basically the basis of how our banking system works though.
• psunavy03 1y ago
  Why is this even a question? I run one hell of a personal trade deficit with Costco and Safeway, because they have groceries and supplies I need to buy, and I have money to give them. Countries are no different. The whole point of free trade is a win-win game. Someone has stuff/services you need, and you're willing to pay for them. In the end, everyone is happier than before.
• damion6 1y ago
  [dead]
• burnt-resistor 1y ago
  Trade deficit are sales envy. Value is exchanged. There is nothing wrong except the empire's unlimited greed to have it all.
  • JackYoustra 1y ago
    it's not greed! It's just being dumb. If the empire wanted it all they'd try and enforce this state of affairs and have an infinite trade deficit in exchange for nothing (/ dollar exporting).
• Beijinger 1y ago
  Dark matter in the American trade balance https://www.gmexconsulting.com/cms/de/dunkle-materie-in-der-amerikanischen-ausenhandelsbilanz/ https://www.gmexconsulting.com/cms/de/dunkle-materie-in-der-... Translation: https://www-gmexconsulting-com.translate.goog/cms/de/dunkle-materie-in-der-amerikanischen-ausenhandelsbilanz/?_x_tr_sl=auto&_x_tr_tl=en&_x_tr_hl=en&_x_tr_pto=wapp https://www-gmexconsulting-com.translate.goog/cms/de/dunkle-...
• cryptonector 1y ago
  > Using national accounting, one can show deficits are also due to a persistent shortfall in domestic saving that requires funds from abroad to finance domestic investment spending. But which is the cause, and which is the effect?
  • JackYoustra 1y ago
    The cause is persistent shortfall in domestic saving and the effect is using abroad dollars to finance spending. The cause starts from both micro agents secularly deciding to spend more than save and from the government making law large deficits (a large source of not saving).
• coolguy4 1y ago
  Because there is a fiscal deficit which requires borrowing, which means that new money is created. If the new money were spent only in the USA it would cause prices to go up a lot, so the money goes overseas so that the price increases are more moderate (arbitrage). Why is there a fiscal deficit? Because politicians want to win elections. If the fiscal deficit were ended then mathematically there could not be a trade deficit.
  • dustingetz 1y ago
    if this is zero sum-ish then who is the counterparty that’s getting screwed and how?
    • cryptonector 1y ago
      Economies are not zero-sum games. World trade _is_ a zero-sum game (all exports and all imports worldwide must net out to zero).
• thewileyone 1y ago
  Services aren't added in the equation. With services, like Netflix, Office365, etc, the US runs a trade surplus.
  • vpribish 1y ago
    it's the New York Fed. they are not making that mistake.
  • herbst 1y ago
    There are several comments in here claiming that is something that trump said but doesn't hold up in real numbers
  • hoppyhoppy2 1y ago
    https://news.ycombinator.com/item?id=44041750 https://news.ycombinator.com/item?id=44041750
• cookiengineer 1y ago
  I think what the US administration hasn't realized yet is that the world isn't interested as much in oil anymore. Previous wars were fought to combat the dropping prices of oil, and to remove influence of the Middle East (e.g. Qatar politics, UAE, Iraq, Iran etc). Trump is stuck with an industry that hasn't realized what's going on: The new currency is not oil, not tech and electronics, it's energy. China realized its dependency on oil a long time ago. Take a look at their geopolitical shift in regards to South China Sea expansions to take back control of the trade routes going through the straits in the West and through Taiwan. In parallel, China tries to remove its dependency on oil and coal altogether as much as possible and invests into solar power like no other nation. Then you look at the Middle East, which is now the replacement for Russia in terms of gas and oil delivery. Russia lost its geopolitical influence on a lot of nations who are now customers of nations in the Middle East, which also removes influence and control of the US, which hurts it too. Then you have oil trades from Russia to the remaining nations. The ruble doesn't go down further because Russia _forces_ nations to trade its oil and gas in Rubles. They do it for exactly that reason. Why do you think Russia invaded from the East, when from the North and West would have been much easier? What do you think is there? Exactly, the oil fields for which the deal went to Western companies literally two weeks before Operation Z / the invasion. Geopolitics is meanwhile all about energy. And that's what the US totally slept in and is now paying the bill. But what do you expect being the only nation producing cars exclusively for their own market because nobody else can pay the price to drive a V8 without a catalysator anymore? The US is a nation stuck in the past, and the pointless hostilities towards surrounding nations won't even help fixing the problem. It would have been a much smarter choice to find reasons for going to war with Qatar or UAE. Just from the perspective of what a "smart bully" would have done. Alternatively investing all budgets into wind and solar energy to make up the losses would have been more future proof, too, and literally the strategy that all other peaceful nations are going for. Guess the Republicans at the wheel are too busy to throw piles of shit into the crowd, huh? Fear sells easier, after all, I guess.
• yanhangyhy 1y ago
  wow, China’s internal-external internet separation policy really makes it difficult for people outside the country to truly understand what’s going on inside.
• erulabs 1y ago
  > Finally, achieving the goal of a smaller trade deficit will likely be painful While true, this is economics in a bottle. A world war would also "likely be painful", and one would require factories on-shore and a devalued currency to improve ones odds. In a perfectly peaceful and massive and stable vacuum-world, being the global reserve currency and running a trade deficit and "raising the economy’s productive capacity" is much better than the alternative. Things aren't so simple. What do you import, and from whom? Are your now unemployed working-class political benign or politically violent? Is your productive capacity capable of producing ships and missiles? Sure ad revenue is great, but can it intercept ICBMs? If all goods are widgets and we're discussing economics without politics, this is completely spot-on. Alas...
• eightman 1y ago
  Because America is rich and they like to buy things.
• lestertomlin 1y ago
  [flagged]
• acyou 1y ago
  I assume that the New York Fed would like Americans to be more patriotic, save more, and buy less cheap imported crap, that's why they wrote this article in this way. But it skates past a few key issues. 1. Consumption doesn't zero out, because domestic consumption in the USA is mostly spent in China, not in the USA. That is what contributes to the trade deficit, not lack of saving. 2. Asset price inflation contributes hugely to the money supply. Where is this in this equation? It's not saving, it's not investment, it's not consumption, it's mind boggling amount of money created from nothing. That asset price inflation is the true source of wealth creation and money supply growth, not bond sales, quantitative easing, or whatever. 3. Domestic saving is in no way equivalent to productive investment in the US economy. Are people keeping money in their mattress considered accounting discrepancies? Companies hoard cash like dragons. What investment in USA? Have you seen much new equipment or new factories? What investment means here is pumping up USA asset prices, it stretches the definition of the word investment to the absolute limit. Domestic saving just ends up as unused savings in an account somewhere, we don't have a good mechanism to put it to actual productive use. 4. The true role of the Federal Reserve is to stabilize and increase asset prices. Money can be easily created by stimulating asset price growth. 5. Funds from abroad don't finance business investment in USA. Investment is a very nice way to put it. They are foreign funds snapping up American real estate and other hard assets. Investment somewhat implies it will lead to economic benefits. Foreign ownership of American assets, companies and real estate is what "investment" means. It doesn't mean growth, it means shrinkage, I think the foreign owned assets tend to lose their value.
  • empath75 1y ago
    > Domestic saving is in no way equivalent to productive investment in the US economy. Are people keeping money in their mattress considered accounting discrepancies? Companies hoard cash like dragons. What investment in USA? Have you seen much new equipment or new factories? What investment means here is pumping up USA asset prices, it stretches the definition of the word investment to the absolute limit. Domestic saving just ends up as unused savings in an account somewhere, we don't have a good mechanism to put it to actual productive use. This is completely nonsensical. Banks (eliding a lot of important details about money and loan creation) use money in those accounts to make loans, and a large percentage of those loans are used for investing in businesses and real estate. "Pumping up USA asset prices", I assume means "buying stocks", which also leads to investment by the companies who sold those stocks. Companies that "hoard cash" don't literally have piles of dollar bills somewhere. Apple, for example has billions of dollars of "cash on hand", but a large percentage of that is actually in bonds and other liquid assets that are investments, and not actually just a useless hoard. They keep pure "cash equivalents" on hand mostly for operations purposes. > Funds from abroad don't finance business investment in USA. They are foreign funds snapping up American real estate and other hard assets. This is literally what investing is. Where do you think that money goes? To the people who built those buildings and other assets. Do you think they just light the money on fire? No, they build more buildings and other assets to sell to foreign investors. And they are still productive assets in the US, with different ownership.
• Aziell 1y ago
  Trade deficit sounds bad, but it’s not always a problem. Other countries sell us stuff, then use the dollars to buy U.S. assets. It’s like we get goods, they get a savings account.
  • immibis 1y ago
    This. A trade deficit is a goods and services surplus. People are sending you shit for free. What's not to like about that? Well, it's unsustainable, so you should have a backup plan, but while it lasts it's pretty good. It's the singular reason the USA is the richest country, and the new regime wants to stop it. In return you have to give them money, but you can just print that. It costs nothing to get. You can also just confiscate it. If Trump was really worried about other countries having too many dollars, he could set their balances to zero with the stroke of a pen. They wouldn't trade with him any more after that, of course, and might even launch nukes. But hey, Nixon confiscated the world's gold and got away with it.
    • nr378 1y ago
      > People are sending you shit for free. They aren't sending you stuff for free, they're sending you stuff in exchange for the right to receive future cashflows back from you (i.e. they're sending you stuff in exchange for taking ownership of your financial assets). This isn't necessarily a bad trade for you, but it's far from free.
      • immibis 1y ago
        They're sending you real stuff in exchange for database entries that entitle them to more database entries in the future. Seems like a no-brainer.
• opentokix 1y ago
  Because USA makes garbage
• topspin 1y ago
  The US has large trade deficits because US leadership uses the lucrative US market as a diplomatic reward. By "leadership" I mean the governing interests of the US, not merely its political class. The history of this is long, going back to the 19th century, but it became a major diplomatic tool after WW2. As the US sought to secure allies after WW2, it used the incredible wealth of its population as a carrot to gain and ensure compliance of foreign nations. Japan is an obvious example: the recovery and prosperity of Japan was the direct result of deliberately utilizing the US domestic market to create demand for Japanese products. The result is well understood today: Japan thrived as it claimed enormous shares of US electronic, automotive, machine tool, and other sectors of the US economy, and the US secured a strategic ally in the Western pacific, where it has hosted vast military resources for going on 75 years now. This practice has continued unabated ever since, with Trump being effectively the only significant impediment to have ever emerged. In the 1990s the rationale for MFN status for China was "human rights." China was expected to comport with some notion of human rights and, in turn, China would join the long list of MFN status nations. Again, trade with the US as a diplomatic reward for some US prerogative. All of this is incentivized by the fact that, aside from approval from the US Senate, the US president has the exclusive prerogative to negotiate trade deals with little to no limits on the terms. The president can do this without passing any bills in Congress, allocating any budgets, winning any court battles, etc. Just negotiate a trade deal, get it approved by the Senate, and shazam: you've changed the world. This is further incentivized by "fast track" authority for the executive, which has been US law since 1975. Finally, this is all lubricated by the ability to ship vast quantities of cargo from distant locales at low cost. This part really spun up in the 1960's with the US driven standardization of containerization. With this affordance in hand, it became feasible to leverage low cost foreign resources on a large scale, and US captains of industry now had a solution to relieve themselves of high costs in the US: labor costs, regulatory costs, taxes, etc. With industry and government fully aligned based on independent interests, the trend became the dominant factor of global economics: the world literally runs on US trade deficits. This has been a one way street for coming up on a hundred years now. It isn't terribly surprising that the pendulum is, if not yet swinging back, at least slowing its present direction. I suspect this part might be hard to understand for those that frequent a site like HN, but the bottomless well of US wealth is basically gone now: much of the population of the US lives a sort of high tech subsistence lifestyle, and it's not difficult to imagine the day when their access to credit will effectively stop. That will happen in parallel with the collapse of government finance in the US, which basically creates a new benchmark for the concept of "clown world" with every passing day. So there is a hard expiration date coming for all of this.
• ashoeafoot 1y ago
  Empires have perverse incentives to be extractive and monopoly building.. and its war and conflict and resulting elite exchange/ land redistribution that rearranges the lottery once more.
• usrbinbash 1y ago
  > Why does the U.S. always run a trade deficit? For the same reason why I run a trade deficit with my barber and my grocery store.
• metalman 1y ago
  amazing how successfull the "deficit" narative is for the country that somehow gets the largest share of the worlds real comodities and goods shipped to it's shores in exchange for some "currency" pulled strait from the iether! and as someone said, If I owe a thousand dollars, it's my problem, but if I owe 5 million, it's the bank's problem, so I think it is a good idea for me to run a bit of a personal "deficit", you know just to do my part, and be a good citizen, hard as it is to take all that stuff, someone has to do it, but realy it's not fair, no not fair to get all the stuff and hand out IOU's for some stuff that I just have to mark up a bit, no not fair, all the time and trouble marking my stuff up, in fact I think I need to be compensated for marking my stuff up
• deleted 1y ago
  [deleted]
• seanhunter 1y ago
  The whole idea of balanced trade makes no sense at all. Take New Zealand as an example. Last year the major import from NZ to the US was wine. The major export from US to NZ was military hardware. Now. Why should the dollar quantity of wine you buy from someone equal the dollar quantity of military hardware you sell them? There really is no reason at all that the bilateral trade between countries should be balanced and therefore it's not reasonable to think that the aggregate trade with all countries should be balanced or that it would be more desirable if that were the case.
  • benjaminwootton 1y ago
    Isn’t the bigger problem that the US has a population of 340 million, New Zealand has a population of 5 million?
    • seanhunter 1y ago
      But that's no excuse. Those goddam kiwis have to buy more fighter jets or we stop buying their wine. You're right of course.
  • _1tem 1y ago
    You misunderstood: balanced trade is about the sum across all countries, not necessarily between any two countries. There can be a trade imbalance between NZ and the US without an overall trade deficit in either country. The point is, that NZ might sell wine and buy fighter jets, but they have to sell enough wine to the rest of the world to pay for the fighter jets, then their trade is balanced. There’s no problem if they have an imbalance of trade with the US as long as it’s balanced overall.
    • seanhunter 1y ago
      I didn't misunderstand at all. There is no reason to expect bilateral trade to be balanced and thus there is no reason to expect the aggregate of a large number of bilateral trade relationships to be balanced. "Nothing, however, can be more absurd than this whole doctrine of the balance of trade, upon which, not only these restraints, but almost all the other regulations of commerce are founded. " Adam Smith, "Wealth of Nations"
• DarkNova6 1y ago
  The US runs a trade deficit because it runs a service export surplus. If you only ever mention one of those, you are either just following a narrative or actively deceive others.
• jgalt212 1y ago
  A trade deficit is a boon for the investor class. The foreign bid makes US assets trade at prices above the level they would if the US ran a trade surplus.
• nazgulnarsil 1y ago
  If you buy things that are productive you come out ahead on a trade deficit. If you buy things that are consumptive you are pawning future productive capacity of the country. Every country does both, obviously, what matters is the overall balance. The US has notably (as in quantified by economists, civil engineers, people who study urban planning etc.) failed to invest in productive infra for quite a while now.