Trade deficit at all time high

Engineer

Elite Member
Oct 9, 1999
39,230
701
126
Click me!

While I understand that we use cheaper offshore labor to buy many things (DVD players, PC's, toys, etc), at what point does it hurt America so bad that we have a severe recession or dollar ramifications?

The nearly $800 billion per year pace is pretty staggering. When outflow is that much more than inflow, it would seem that a correction would have to take place at some point?

Thoughts?

WASHINGTON - The deficit in the broadest measure of international trade rose to an all-time high of $195.1 billion from January through March of this year as the country sank deeper into debt to Japan, China and other nations.


The Commerce Department reported Friday that the deficit in the current account rose by 3.6 percent from the previous quarterly record, an imbalance of $188.4 billion in the final three months of 2004.

The current account deficit has risen to record heights in recent years as America's demand for foreign goods and servicers has soared, raising worries about the country's ability to continue financing a trade deficit at such heights.

The current account deficit for all of 2004 hit a record $668.1 billion, up a sharp 28.6 percent from the previous record of $519.7 billion in 2003.

The current account is the broadest measure of foreign trade because it covers not only trade in goods and services but also foreign aid and investment flows between nations.

The U.S. deficit must be finananced by foreigners agreeing to hold more in dollar-denominated investments, something that so far they have been quite happy to do as they sell Americans more and more foreign cars, television sets and other consumer products.

However, economists worry that at some point foreigners may lose their enthusiasm for dollar-denominated investments and begin dumping their holdings in U.S. stocks and bonds. Such a development could cause interest rates in the United States to soar and push the value of the dollar and stocks down sharply. If the reaction was severe enough, it could push the country into a recession.

Federal Reserve Chairman Alan Greenspan has called the current account levels unsustainable but he also has said that market forces should be able to deal with the problem in a way that will not seriously disrupt the U.S. economy.

The rise in the current account deficit for the first quarter meant that the deficit now represents 6.4 percent of the total U.S. economy, also a record as a percentage of the gross domestic economy.

The deterioration in the first quarter deficit reflected an increase of $4.15 billion in the deficit in goods which rose to $186.3 billion. This was offset slighlty by an increase of $1.62 billion in the surplus in services, which rose to $14.57 billion in the first quarter.

The surplus on investment flows increased by $541 million to $3.78 billion but the deficit in unilateral transfers, a category that includes foreign aid, increased by $4.70 billion to $27.07 billion
 

dmcowen674

No Lifer
Oct 13, 1999
54,889
47
91
www.alienbabeltech.com
Originally posted by: Engineer
Click me!

While I understand that we use cheaper offshore labor to buy many things (DVD players, PC's, toys, etc), at what point does it hurt America so bad that we have a severe recession or dollar ramifications?

The nearly $800 billion per year pace is pretty staggering.

When outflow is that much more than inflow, it would seem that a correction would have to take place at some point?

Thoughts?

The Republicans especially the rich has said many times in here as long as they are rich and can continue to piss the money over to China it doesn't affect them so they don't care.
 

Willoughbyva

Diamond Member
Sep 26, 2001
3,267
0
0
I am not an economist, but i would think that the trade deficit will continue until there is equalization. That is when a person can do things here in this country just as cheap or cheaper than they can get it done in another country. So I guess you might look at it like they get paid pennies over there to do stuff and they can ship it here and profit can be made. As soon as our economy becomes like their economy as far as wages/compensation goes we will have equalization. Thing is some people over here will be rich and most will be poor. The poor people won't be able to afford things, and the rich people will be able to buy the poor people out. Think of it sort of like indians and settlers. Instead of race war, it will be economic warfare. That is why tarrifs were such a hit back in the day. They say that America is a service economy now. I wonder what the average wage is. BTW I also think the elite want it this way so they can become more rich and powerful. There is one good thing. If they are making products then they will probably exhaust their supplies before we exhaust ours. So maybe in the end the rich really do win.
 

Genx87

Lifer
Apr 8, 2002
41,091
513
126
Economy is growing and thus you can expect it to consume more. We dont produce everything we use here at home thus we have to import.

I am curious as a % of gdp what our trade deficit looks like.
 

NJDevil

Senior member
Jun 10, 2002
952
0
0
Originally posted by: Genx87
Economy is growing and thus you can expect it to consume more. We dont produce everything we use here at home thus we have to import.

I am curious as a % of gdp what our trade deficit looks like.

If i'm not mistaken, our GDP is around 11 trillion. The total current account deficit last year was around 660 billion, so around 6% or so.
 

piasabird

Lifer
Feb 6, 2002
17,168
60
91
Willoughbyva So you want everyone in the USA to make as much as people in India or maybe China, or Mexico?

Seems like this is not such a good idea to me. To accomplish this task everyone will move into a grass hut tomorrow.
 

frankie38

Senior member
Nov 23, 2004
677
0
0
Balance of Trade deficit tells us that we are importing more than we export. Now, a deficit is not always a bad thing.

Sure we are importing DVD players and TV's to be sold here to Americans who want to buy them. That is not a problem.

A large part of the deficit is our importing of OIL. OIL is at $57 per barrel. We use alot of barrels. We need this oil to drive our growth. So we wont stop buying oil anytime soon.

Of course we are helping all the OIL producers finance ther growth which is a good thing. Now what would really be nice if the Saudi's would stop using our money to finance terrorism.

It is also good that we are helping Asian countries too. Why? So they can grow and invest and buy things that we are good at making.

Such as Boeing jets, Medicines. Technology, Financial Services and Retailing.

So the deficit is not a simple its good or bad thing. Its good with some countries and clearly not so good with others.

 

artikk

Diamond Member
Dec 24, 2004
4,172
1
71
Originally posted by: piasabird
Willoughbyva So you want everyone in the USA to make as much as people in India or maybe China, or Mexico?

Seems like this is not such a good idea to me. To accomplish this task everyone will move into a grass hut tomorrow.

The other way to look at it would be if the wages rose in China to US's level. Then US wouldn't have to import anymore because it would equally cheap to produce a product either in China or US. Then the trade deficit would level off.
 

Stunt

Diamond Member
Jul 17, 2002
9,717
2
0
Meanwhile...
Canada's Trade Surplus Grows
Trade surplus grows

By TAVIA GRANT
Friday, June 10, 2005 Updated at 8:55 AM EDTKey

Globe and Mail Update
Canada's April trade balance increased to $5.1-billion, more than economists' had expected, boosted by higher exports of meat and airplanes.

March's surplus, meantime, was revised to $4.8-billion because of a 1.4-per-cent revision in exports, Statistics Canada said Friday.

Economists polled by Reuters had expected a trade surplus of $4.4-billion for the month.

Exports rose 0.3 per cent to $36.4-billion ?as record high levels of meat and meat preparations and solid gains in aircraft and telecommunications equipment offset declines in energy and automotive products,? Statscan said. In contrast, imports fell 0.5 per cent to $31.3-billion.

Combine that with a budget surplus, and you can't really complain ;)
 

Engineer

Elite Member
Oct 9, 1999
39,230
701
126
Originally posted by: Stunt
Meanwhile...
Canada's Trade Surplus Grows
Trade surplus grows

By TAVIA GRANT
Friday, June 10, 2005 Updated at 8:55 AM EDTKey

Globe and Mail Update
Canada's April trade balance increased to $5.1-billion, more than economists' had expected, boosted by higher exports of meat and airplanes.

March's surplus, meantime, was revised to $4.8-billion because of a 1.4-per-cent revision in exports, Statistics Canada said Friday.

Economists polled by Reuters had expected a trade surplus of $4.4-billion for the month.

Exports rose 0.3 per cent to $36.4-billion ?as record high levels of meat and meat preparations and solid gains in aircraft and telecommunications equipment offset declines in energy and automotive products,? Statscan said. In contrast, imports fell 0.5 per cent to $31.3-billion.

Combine that with a budget surplus, and you can't really complain ;)

Nice numbers! ;)

Now if you could just do something about that goshdarn cold and snowy winter that you guys have! :p

 

ElFenix

Elite Member
Super Moderator
Mar 20, 2000
102,374
8,499
126
i wouldn't have a problem with it if the tilt wasn't completely against us re: china. currency undervalued by maybe 40%, stuff getting dumped, industries get 0% interest government 'loans' that usually end up never getting repaid, etc., etc.
 

Genx87

Lifer
Apr 8, 2002
41,091
513
126
Originally posted by: NJDevil
Originally posted by: Genx87
Economy is growing and thus you can expect it to consume more. We dont produce everything we use here at home thus we have to import.

I am curious as a % of gdp what our trade deficit looks like.

If i'm not mistaken, our GDP is around 11 trillion. The total current account deficit last year was around 660 billion, so around 6% or so.

The last I saw was 11.8 Trillion for 2004. Not sure what it will be like this year, probably about 3-4% higher.

I am curious through the years what our trade deficit to gdp has been.
 

ahurtt

Diamond Member
Feb 1, 2001
4,283
0
0
This article here is part of the problem. Yes the article is a satire but it makes a valid point. How much do American's contribute to the deficit by buying stuff we would never know we "needed" if it didn't exist? Salad shooters, microwave omlette makers. . .I mean come on. . .honestly. But people buy this crap!

 

ntdz

Diamond Member
Aug 5, 2004
6,989
0
0
Originally posted by: dmcowen674
Originally posted by: Engineer
Click me!

While I understand that we use cheaper offshore labor to buy many things (DVD players, PC's, toys, etc), at what point does it hurt America so bad that we have a severe recession or dollar ramifications?

The nearly $800 billion per year pace is pretty staggering.

When outflow is that much more than inflow, it would seem that a correction would have to take place at some point?

Thoughts?

The Republicans especially the rich has said many times in here as long as they are rich and can continue to piss the money over to China it doesn't affect them so they don't care.

What?!?! Who has said that?!?! What in the hell are you talking about? I believe the trade deficit is a problem, and I believe the cause of it, in large part, is China's pegging the Yuan to the Dollar.
 

NeenerNeener

Senior member
Jun 8, 2005
414
0
0
That article was classic!

Funny. Seems like those that listen to right talk radio think the trade deficit is more of a problem, and those that listen to left radio think that the budget deficit is more of a problem.
 

Engineer

Elite Member
Oct 9, 1999
39,230
701
126
Originally posted by: NeenerNeener
That article was classic!

Funny. Seems like those that listen to right talk radio think the trade deficit is more of a problem, and those that listen to left radio think that the budget deficit is more of a problem.


Well, at the current time, I think both are a problem! :Q
 

sandorski

No Lifer
Oct 10, 1999
70,485
6,034
126
Originally posted by: Genx87
Originally posted by: NJDevil
Originally posted by: Genx87
Economy is growing and thus you can expect it to consume more. We dont produce everything we use here at home thus we have to import.

I am curious as a % of gdp what our trade deficit looks like.

If i'm not mistaken, our GDP is around 11 trillion. The total current account deficit last year was around 660 billion, so around 6% or so.

The last I saw was 11.8 Trillion for 2004. Not sure what it will be like this year, probably about 3-4% higher.

I am curious through the years what our trade deficit to gdp has been.

6% is the figure I heard from an investment analyst a couple days back. This analyst also said that if it were any other country the IMF would have stepped in by now and taken over that countries fiscal management. It is dangerously high.
 

charrison

Lifer
Oct 13, 1999
17,033
1
81
Originally posted by: sandorski
Originally posted by: Genx87
Originally posted by: NJDevil
Originally posted by: Genx87
Economy is growing and thus you can expect it to consume more. We dont produce everything we use here at home thus we have to import.

I am curious as a % of gdp what our trade deficit looks like.

If i'm not mistaken, our GDP is around 11 trillion. The total current account deficit last year was around 660 billion, so around 6% or so.

The last I saw was 11.8 Trillion for 2004. Not sure what it will be like this year, probably about 3-4% higher.

I am curious through the years what our trade deficit to gdp has been.

6% is the figure I heard from an investment analyst a couple days back. This analyst also said that if it were any other country the IMF would have stepped in by now and taken over that countries fiscal management. It is dangerously high.



The one thing to remember about the trade defecit, it is balanced by investment dollars flowing into the country.
 

Zebo

Elite Member
Jul 29, 2001
39,398
19
81
Originally posted by: charrison
Originally posted by: sandorski
Originally posted by: Genx87
Originally posted by: NJDevil
Originally posted by: Genx87
Economy is growing and thus you can expect it to consume more. We dont produce everything we use here at home thus we have to import.

I am curious as a % of gdp what our trade deficit looks like.

If i'm not mistaken, our GDP is around 11 trillion. The total current account deficit last year was around 660 billion, so around 6% or so.

The last I saw was 11.8 Trillion for 2004. Not sure what it will be like this year, probably about 3-4% higher.

I am curious through the years what our trade deficit to gdp has been.

6% is the figure I heard from an investment analyst a couple days back. This analyst also said that if it were any other country the IMF would have stepped in by now and taken over that countries fiscal management. It is dangerously high.



The one thing to remember about the trade defecit, it is balanced by investment dollars flowing into the country.


Yea so not only are people losing jobs, America is losing her wealth/equity to foreigners. Great deal.

Outsourcing?A Greater Threat Than Terrorism?
By Paul Craig Roberts

Is offshore outsourcing good or harmful for America?

To convince Americans of outsourcing?s benefits, corporate outsourcers sponsor misleading one-sided "studies." Only a small handful of people have looked objectively at the issue. These few and the large number of Americans whose careers have been destroyed by outsourcing have a different view of outsourcing?s impact.

But so far there has been no debate, just a shouting down of skeptics as "protectionists."

Now comes an important new book, Outsourcing America, published by the American Management Association. The authors, two brothers, Ron and Anil Hira, are experts on the subject. One is a professor at the Rochester Institute of Technology, and the other is professor at Simon Fraser University.

The authors note that despite the enormity of the stakes for all Americans, a state of denial exists among policymakers and outsourcing?s corporate champions about the adverse effects on the US.

The Hira brothers succeed in their task of interjecting harsh reality where delusion has ruled.

In what might be an underestimate, a University of California study concludes that 14 million white-collar jobs are vulnerable to being outsourced offshore. These are not only call-center operators, customer service and back-office jobs, but also information technology, accounting, architecture, advanced engineering design, news reporting, stock analysis, and medical and legal services.

The authors note that these are the jobs of the American Dream, the jobs of upward mobility that generate the bulk of the tax revenues that fund our education, health, infrastructure, and social security systems.

The loss of these jobs "is fool?s gold for companies." Corporate America?s short-term mentality, stemming from bonuses tied to quarterly results, is causing US companies to lose not only their best employees?their human capital?but also the consumers who buy their products.

Employees displaced by foreigners and left unemployed or in lower paid work have a reduced presence in the consumer market. They provide fewer retirement savings for new investment.

Nothink economists assume that new, better jobs are on the way for displaced Americans, but no economists can identify these jobs. The authors point out that "the track record for the re-employment of displaced US workers is abysmal:

"The Department of Labor reports that more than one in three workers who are displaced remains unemployed, and many of those who are lucky enough to find jobs take major pay cuts. Many former manufacturing workers who were displaced a decade ago because of manufacturing that went offshore took training courses and found jobs in the information technology sector. They are now facing the unenviable situation of having their second career disappear overseas."

American economists are so inattentive to outsourcing?s perils that they fail to realize that the same incentive that leads to the outsourcing of one tradable good or service holds for all tradable goods and services.

In the 21st century the US economy has only been able to create jobs in nontradable domestic services?the hallmark of a third world labor force.

Prior to the advent of offshore outsourcing, US employees were shielded against low wage foreign labor. Americans worked with more capital and better technology, and their higher productivity protected their higher wages.

Outsourcing forces Americans to "compete head-to-head with foreign workers" by "undermining US workers? primary competitive advantage over foreign workers: their physical presence in the US" and "by providing those overseas workers with the same technologies."

The result is a lose-lose situation for American employees, American businesses, and the American government. Outsourcing has brought about record unemployment in engineering fields and a major drop in university enrollments in technical and scientific disciplines. Even many of the remaining jobs are being filled by lower paid foreigners brought in on H-1b and L-1 visas. American employees are discharged after being forced to train their foreign replacements.

US corporations justify their offshore operations as essential to gain a foothold in emerging Asian markets. The Hira brothers believe this is self-delusion.

"There is no evidence that they will be able to outcompete local Chinese and Indian companies, who are very rapidly assimilating the technology and know-how from the local US plants. In fact, studies show that Indian IT companies have been consistently outcompeting their US counterparts, even in US markets. Thus, it is time for CEOs to start thinking about whether they are fine with their own jobs being outsourced as well."

The authors note that the national security implications of outsourcing "have been largely ignored."

Outsourcing is rapidly eroding America?s superpower status. Beginning in 2002 the US began running trade deficits in advanced technology products with Asia, Mexico and Ireland.

As these countries are not leaders in advanced technology, the deficits obviously stem from US offshore manufacturing.

In effect, the US is giving away its technology, which is rapidly being captured, while US firms reduce themselves to a brand name with a sales force.

In an appendix, the authors provide a devastating expose of the three "studies" that have been used to silence doubts about offshore outsourcing?the Global Insight study (March 2004) for the Information Technology Association of America, the Catherine Mann study (December 2003) for the Institute for International Economics, and the McKinsey Global Institute study (August 2003).

The ITAA is a lobbying group for outsourcing. The ITAA spun the results of the study by releasing only the executive summary to reporters who agreed not to seek outside opinion prior to writing their stories.

Mann?s study is "an unreasonably optimistic forecast based on faulty logic and a poor understanding of technology and strategy."

The McKinsey report "should be viewed as a self-interested lobbying document that presents an unrealistically optimistic estimate of the impact of offshore outsourcing and an undeveloped and politically unviable solution to the problems they identify."

Outsourcing America is a powerful work. Only fools will continue clinging to the premise that outsourcing is good for America.

Paul Craig Roberts, a former Reagan Administration official, is the author of The Supply-Side Revolution and, with Lawrence M. Stratton, of The Tyranny of Good Intentions : How Prosecutors and Bureaucrats Are Trampling the Constitution in the Name of Justice. Click here for Peter Brimelow?s Forbes Magazine interview with Roberts about the recent epidemic of prosecutorial misconduct.

COPYRIGHT CREATORS SYNDICATE, INC.


 

sandorski

No Lifer
Oct 10, 1999
70,485
6,034
126
Originally posted by: ntdz
Originally posted by: dmcowen674
Originally posted by: Engineer
Click me!

While I understand that we use cheaper offshore labor to buy many things (DVD players, PC's, toys, etc), at what point does it hurt America so bad that we have a severe recession or dollar ramifications?

The nearly $800 billion per year pace is pretty staggering.

When outflow is that much more than inflow, it would seem that a correction would have to take place at some point?

Thoughts?

The Republicans especially the rich has said many times in here as long as they are rich and can continue to piss the money over to China it doesn't affect them so they don't care.

What?!?! Who has said that?!?! What in the hell are you talking about? I believe the trade deficit is a problem, and I believe the cause of it, in large part, is China's pegging the Yuan to the Dollar.

Certainly China's pegging policy is part of the cause, but China is also using it's favourable position to prop up the US economy. It's quite a bit more complicated than just the pegging.

Using once again the legendary "analyst" as a source( ;) ), an analyst I heard(possibly the same one mentioned in previous post) suggested that if China unpegged their currency it would cause a possible collapse of their Banking system. This collapse would be far worse than the continued pegging policy as it would reverberate around the world. It was suggested that China simply can't pursue that change for awhile, but that eventually it would.

The "analyst" was heard here, not sure if those links will work, for I can't get them to, but if they do, I believe it was the US CPI report(Trading Desk with Pat Bolland) where the analyst says his/her bit. If not, there's at least 1 other show discussing the CPI and one discussing Pacific Economic issues.
 

sandorski

No Lifer
Oct 10, 1999
70,485
6,034
126
Originally posted by: charrison
Originally posted by: sandorski
Originally posted by: Genx87
Originally posted by: NJDevil
Originally posted by: Genx87
Economy is growing and thus you can expect it to consume more. We dont produce everything we use here at home thus we have to import.

I am curious as a % of gdp what our trade deficit looks like.

If i'm not mistaken, our GDP is around 11 trillion. The total current account deficit last year was around 660 billion, so around 6% or so.

The last I saw was 11.8 Trillion for 2004. Not sure what it will be like this year, probably about 3-4% higher.

I am curious through the years what our trade deficit to gdp has been.

6% is the figure I heard from an investment analyst a couple days back. This analyst also said that if it were any other country the IMF would have stepped in by now and taken over that countries fiscal management. It is dangerously high.



The one thing to remember about the trade defecit, it is balanced by investment dollars flowing into the country.

That is true, in fact the US would be fvkd if it weren't. A big part of the problem(as mentioned in my previous post) though, is that the very country(ies) that are a major part of the Trade Deficit are also the same countries who are sending all those Dollars back to the US. This situation can't go on forever and unless the US remedies the twin deficits things will get real bad.
 

dullard

Elite Member
May 21, 2001
25,648
4,162
126
Originally posted by: Genx87
I am curious through the years what our trade deficit to gdp has been.
I wish I still had the links, but I once did a little research on this for another post in another forum. The result is that in years when trade deficit gets bigger (more negative) are almost uniformly great for the US GDP, have increases in US manufacturing jobs, etc. Years when the trade deficit gets smaller (closer to zero) are almost uniformly bad for the US GDP, have major cuts in US manufacturing jobs, etc. Yes, you read correctly, it is backwards of what you think.

If you plot a graph where trade deficit as a share of GDP is on the x-axis and growth of real GDP is on the y-axis, a trend appears. The result is roughly*:

Growth of GDP = -1.73 * (trade deficit share of GDP) + 0.02.

Or in layman's terms, if trade deficit is more negative (more deficit), then GDP rises. When trade deficit is near zero, growth of GDP was near zero.

Why? Trade deficits don't cause GDP changes. Instead, GDP changes cause trade deficits. If America's economy is doing well, then Americans have more money to buy foreign goods. Thus trade deficit is bigger in the good years. If America is doing poorly, the money tends to stay local and trade deficit shrinks.

So the fact that we have a large trade deficit is a sign that we are willing and able buy foreign goods. Our ~4% GDP growth currently reflects that.



* Data from ~1970 to ~2000, it was an old post, I'm sorry I don't have current data.