Why is a trade imbalance bad?

[Trevelyan]

For example, Iran is now switching to Euros for its oil sales, possibly as an act of defiance. (They are very well aware of the negative economic effect for the US.)

=> http://quote.bloomberg.com/apps/news?pid=20601087&sid=a5EsYUqL5LLs

 

[LunarRay]

Originally posted by: Vic
We didn't get anything in return for our dollars?

In both cases yes.. but in both cases the trickle trickles in different places

 

[dullard]

I'm sure people may like links backing up my previous post. So I did a quick search.

Virtually all economic signs (except the growth in the NYSE index) were better when trade deficit increased. Conversely, virtually all were worse when the trade deficit decreased. But of course, since the NYSE is composed of buyers who mainly misunderstand the trade deficit, this is to be expected to be the only indicator that opposes the rest.

Scroll to Figure 1. All recessions were preceeded by or included decreases in the trade deficit. Most recessions were BOTH preceeded by and included decreases in the trade deficit.

 

[LunarRay]

Originally posted by: Trevelyan
For example, Iran is now switching to Euros for its oil sales, possibly as an act of defiance. (They are very well aware of the negative economic effect for the US.)

=> http://quote.bloomberg.com/apps/news?pid=20601087&sid=a5EsYUqL5LLs

Why would Europe wish to see EURO denominated oil? If all of OPEC went to the EURO it would reduce the dollar investment of both the buyer and seller... and the US would lose its constant supply of currency to support its Trade imbalance. BUT... that would cause massive reduction in US purchase of foreign goods because of the devaluation of the dollar versus the Euro... and that won't happen... not yet at least.. The US is still a pretty big market for the worlds goods... Until we are no longer needed to purchase the Worlds production the Dollar will be supported... We are safe for another maybe.. 25 years. The dynamics of the Dollar/Euro could cause that time to shorten but very slowly and not by much.. (oh.. IMO)

 

[LunarRay]

Originally posted by: dullard
I'm sure people may like links backing up my previous post. So I did a quick search.

Virtually all economic signs (except the growth in the NYSE index) were better when trade deficit increased. Conversely, virtually all were worse when the trade deficit decreased. But of course, since the NYSE is composed of buyers who mainly misunderstand the trade deficit, this is to be expected to be the only indicator that opposes the rest.

Scroll to Figure 1. All recessions were preceeded by or included decreases in the trade deficit. Most recessions were BOTH preceeded by and included decreases in the trade deficit.

Sorta does make sense... don't it?

But what are the little dynamics that cause that... hmmmm.... I think it is more to do with the total volume than the actual ratios. I'd think a billion dollars of goods sold in the US would have much more impact than a million... And 900 million sold to overseas would have more an impact than 900 thousand...
What I'm saying is that if the US makes and sells to its maximum production that is one thing ... separate... and apart from what we purchase... if we purchase near our production exported that is good too... the difference is no a biggie until it exceeds our production exports.. cuz then our export market is not growing.. we help it grow by our Trade Deficit..

 

[dullard]

Originally posted by: LunarRay
But what are the little dynamics that cause that...

I think it is really a simple answer that people try to complicate. The trade deficit is an effect, not a cause. A booming economy in the US CAUSES a trade deficit. Why? In good times, we generate so much national product, that we can afford to let some go to other countries. In bad times, when the economy is sour, we cannot afford those other goods and the bad economy causes a reduction in the trade deficit.

People try to complicate the issue with good sounding, but hollow, arguments that the trade deficit CAUSES economic change here. The fact is, as long as we don't let the deficit get massively out of control (in either direction), the deficit doesn't cause anything.

 

[Vic]

Originally posted by: B00ne
For a country which is the militarily and economically most powerful nation a trade deficit is actually very profitable.

See you can sell potentially worthless paper and get real stuff for it. Now when the day comes you just say: ooops, world now you can wipe your behinds with those green sheets of paper you hoarded there.

Then what is the world going to do - come and demand the goods back that were shipped .....?

I'm glad to see that there is someone else on this forum who understands basic macroeconomics. Not that we are going to default on our own currency (which would be just as disastrous for us as them), but that this money we export is in fact an intangible and that it also has a depreciating value. OTOH we receive manufactured goods in exchange plus substantial stimulus to our economy.
And it's not like China is getting the short end of the stick. Their economy is booming.

 

[piasabird]

If you have a trade imbalance there are many issues involved.

Since the product is not made in the USA, the Federal Government is not getting any income tax when the product is made.

From a social point of view the product might be produced with slave labor or under harsh conditions that we would not allow.

Workers are displaced.

In time of War the product being made, and the infrastructure to manufacture the product might not be available.

The US Dollars might be going to a foreign nation that in turn uses the funds to build up their military or fund terrorism, which we will have to deal with.

When a product is made in the USA like a Car or a lawn mower or something like a plane or a computer, the manufacturer also invests in the local economy. Goods are purchased or parts are ordered from other suppliers and manufacturers in the USA. All kinds of things from Car Washes, to restraunts, to computer support, and even Walmart or the dry cleaners lose business. A company creates a kind of micro economy that supports their workers and their business. If that fails to exist in the USA we lose a lot more than just the cost of the part retail.

 

[Vic]

Originally posted by: dullard

Originally posted by: LunarRay
But what are the little dynamics that cause that...

I think it is really a simple answer that people try to complicate. The trade deficit is an effect, not a cause. A booming economy in the US CAUSES a trade deficit. Why? In good times, we generate so much national product, that we can afford to let some go to other countries. In bad times, when the economy is sour, we cannot afford those other goods and the bad economy causes a reduction in the trade deficit.

People try to complicate the issue with good sounding, but hollow, arguments that the trade deficit CAUSES economic change here. The fact is, as long as we don't let the deficit get massively out of control (in either direction), the deficit doesn't cause anything.

:thumbsup:

 

[dullard]

Originally posted by: Vic
:thumbsup:

I was looking forward to your reply most of all, Vic. I'm glad it met approval.

 

[Darthvoy]

Originally posted by: dullard

Originally posted by: LunarRay
But what are the little dynamics that cause that...

I think it is really a simple answer that people try to complicate. The trade deficit is an effect, not a cause. A booming economy in the US CAUSES a trade deficit. Why? In good times, we generate so much national product, that we can afford to let some go to other countries. In bad times, when the economy is sour, we cannot afford those other goods and the bad economy causes a reduction in the trade deficit.

People try to complicate the issue with good sounding, but hollow, arguments that the trade deficit CAUSES economic change here. The fact is, as long as we don't let the deficit get massively out of control (in either direction), the deficit doesn't cause anything.

unless, of course, China decides to dump all of the US assets and cash it holds, which I think is their plan. What other reason would China continue to keep devaluating their currency?

 

[fskimospy]

Originally posted by: Darthvoy

Originally posted by: dullard

Originally posted by: LunarRay
But what are the little dynamics that cause that...

I think it is really a simple answer that people try to complicate. The trade deficit is an effect, not a cause. A booming economy in the US CAUSES a trade deficit. Why? In good times, we generate so much national product, that we can afford to let some go to other countries. In bad times, when the economy is sour, we cannot afford those other goods and the bad economy causes a reduction in the trade deficit.

People try to complicate the issue with good sounding, but hollow, arguments that the trade deficit CAUSES economic change here. The fact is, as long as we don't let the deficit get massively out of control (in either direction), the deficit doesn't cause anything.

Why would China want to damage the US economy? We are the #1 recipient of their exports in an export driven economy. Our collapse = their collapse.
unless, of course, China decides to dump all of the US assets and cash it holds, which I think is their plan. What other reason would China continue to keep devaluating their currency?

 

[LunarRay]

Originally posted by: dullard

Originally posted by: LunarRay
But what are the little dynamics that cause that...

I think it is really a simple answer that people try to complicate. The trade deficit is an effect, not a cause. A booming economy in the US CAUSES a trade deficit. Why? In good times, we generate so much national product, that we can afford to let some go to other countries. In bad times, when the economy is sour, we cannot afford those other goods and the bad economy causes a reduction in the trade deficit.

People try to complicate the issue with good sounding, but hollow, arguments that the trade deficit CAUSES economic change here. The fact is, as long as we don't let the deficit get massively out of control (in either direction), the deficit doesn't cause anything.

The theme of some sorta seeks to see the existence of trade balance as a causal... Me thinks too much "Post hoc ergo propter hoc'' is in play here and everywhere...
The realities are very hard to separate as all things do link.. but not always in causal fashion... A booming US economy demands... but I do see massive deficits as not ideal since that variance could be used to stimulate production here... but we can't compete.. simple.. That the Chinese don't raise the wages of their workers in line with US workers will keep this wealth generation in China.. In general China's wealth increases but they have so many folks there that individually it don't reflect much..

 

[Engineer]

Originally posted by: her209
More US dollars are leaving the US and ending up in Chinese hands. Doesn't this mean money is leaving our "total pool of money" and therefore, the total amount of money floating around is therefore less and thusly inflation won't be as high? In other words, if every had a twenty dollar bill in their pocket instead of ten, wouldn't that mean they would be willing to pay for $20 for the same item instead of half?

The total pool of money is not static. It's very dynamic and is constantly expanding.

 

[Engineer]

Originally posted by: B00ne
For a country which is the militarily and economically most powerful nation a trade deficit is actually very profitable.

See you can sell potentially worthless paper and get real stuff for it. Now when the day comes you just say: ooops, world now you can wipe your behinds with those green sheets of paper you hoarded there.

Then what is the world going to do - come and demand the goods back that were shipped .....?

/thread

 

[LunarRay]

Originally posted by: her209
More US dollars are leaving the US and ending up in Chinese hands. Doesn't this mean money is leaving our "total pool of money" and therefore, the total amount of money floating around is therefore less and thusly inflation won't be as high? In other words, if every had a twenty dollar bill in their pocket instead of ten, wouldn't that mean they would be willing to pay for $20 for the same item instead of half?

I think you see Currency as a vehicle of transfer limited by some underlying asset (gold, silver, etc.) It is not, as you know... The volume of currency in the world market, if kept inline with the need for it, will enable the orderly transfer of one asset for another.
I've always used the analogy of barrels of oil, loaves of bread, and stuff like that from the prices of the 60's. How many loaves of bread needed to buy a barrel of oil or candy bars or levis .. etc.. then look see the volume of those assets produced and the population change .. then look to see what the currency volume is in the various places... and look see what changed out of sync with all of that.... An economic model of simple thought... heheheh not a game model of math equations but simple and accurate... imo

 

[sandorski]

When the sh1t hits the fan, and it always eventually does, the US Economy will tank due to the Trade Deficit. Certainly the rest of the World will Tank as well, but that's little consolation when you can't pay your Bills and even buying basic necessities becomes your primary concern.

 

[Genx87]

Originally posted by: sandorski
When the sh1t hits the fan, and it always eventually does, the US Economy will tank due to the Trade Deficit. Certainly the rest of the World will Tank as well, but that's little consolation when you can't pay your Bills and even buying basic necessities becomes your primary concern.

Our country wont have a problem producing the basic neccesities if that is what you are worried about. We have plenty of natural resources like water, food, and yes coal, natural gas, and oil.

However we made find it hard buying that TV for 3x the cost. If the rest of the world tanks I think we will still do be better off than them.

 

[sandorski]

Originally posted by: Genx87

Originally posted by: sandorski
When the sh1t hits the fan, and it always eventually does, the US Economy will tank due to the Trade Deficit. Certainly the rest of the World will Tank as well, but that's little consolation when you can't pay your Bills and even buying basic necessities becomes your primary concern.

Our country wont have a problem producing the basic neccesities if that is what you are worried about. We have plenty of natural resources like water, food, and yes coal, natural gas, and oil.

However we made find it hard buying that TV for 3x the cost. If the rest of the world tanks I think we will still do be better off than them.

Prices.

 

[Stunt]

Everyone thinks outsourcing is killing the economy and contributing to the budget deficits in the US.

A few things to consider before people start calling for "the sh!t to hit the fan".
1) From a financial perspective the US is not near as bad as many other first world nations; namely Italy, Germany, France, Japan (all have more debt and larger deficits as a percentage gdp).
2) The largest jumps in US gdp, standard of living and productivity has occured after the reduction of trade barriers.
3) Canada's low dollar valuation during the times of budget deficits and debt made it an attractive place to send manufacturing jobs. Canada has benefited significantly due to the dollar valuation much like China today. Canada's benefit was US benefit through this whole period even though the exports were much larger than imports.
4) Canada (a nation with current account balance and trade surplus) has a significant trade deficit with China as well ($30B imports vs. $6B exports) compare this to the US (243B imports vs. 42B exports)...this represents a similar ratio. If the US is ruining its economy (which i disagree) it's no worse than Canada.

Food for thought before you jump to conclusions.

 

[sandorski]

Originally posted by: Stunt
Everyone thinks outsourcing is killing the economy and contributing to the budget deficits in the US.

A few things to consider before people start calling for "the sh!t to hit the fan".
1) From a financial perspective the US is not near as bad as many other first world nations; namely Italy, Germany, France, Japan (all have more debt and larger deficits as a percentage gdp).
2) The largest jumps in US gdp, standard of living and productivity has occured after the reduction of trade barriers.
3) Canada's low dollar valuation during the times of budget deficits and debt made it an attractive place to send manufacturing jobs. Canada has benefited significantly due to the dollar valuation much like China today. Canada's benefit was US benefit through this whole period even though the exports were much larger than imports.
4) Canada (a nation with current account balance and trade surplus) has a significant trade deficit with China as well ($30B imports vs. $6B exports) compare this to the US (42B imports vs. 243B exports)...this represents a similar ratio. If the US is ruining its economy (which i disagree) it's no worse than Canada.

Food for thought before you jump to conclusions.

4 is moot. Canada still has a Trade Surplus overall which greatly benefits the Economy. The US has done well despite Trade Deficits due to money flowing back into its' economy by International Investors. When the sh1t hits the fan, Foreign Investment will also drop as Economies grind to a halt, throwing more sh1t into the fan.

 

[Stunt]

Originally posted by: sandorski

Originally posted by: Stunt
Everyone thinks outsourcing is killing the economy and contributing to the budget deficits in the US.

A few things to consider before people start calling for "the sh!t to hit the fan".
1) From a financial perspective the US is not near as bad as many other first world nations; namely Italy, Germany, France, Japan (all have more debt and larger deficits as a percentage gdp).
2) The largest jumps in US gdp, standard of living and productivity has occured after the reduction of trade barriers.
3) Canada's low dollar valuation during the times of budget deficits and debt made it an attractive place to send manufacturing jobs. Canada has benefited significantly due to the dollar valuation much like China today. Canada's benefit was US benefit through this whole period even though the exports were much larger than imports.
4) Canada (a nation with current account balance and trade surplus) has a significant trade deficit with China as well ($30B imports vs. $6B exports) compare this to the US (42B imports vs. 243B exports)...this represents a similar ratio. If the US is ruining its economy (which i disagree) it's no worse than Canada.

Food for thought before you jump to conclusions.

4 is moot. Canada still has a Trade Surplus overall which greatly benefits the Economy. The US has done well despite Trade Deficits due to money flowing back into its' economy by International Investors. When the sh1t hits the fan, Foreign Investment will also drop as Economies grind to a halt, throwing more sh1t into the fan.

That's a huge double standard. You cannot wait for exports to outpace imports before you allow more imports. Trade relationships are mutually beneficial to both parties involved either for monetary compensation or trade of goods. Once the decision is made eliminate trade barriers (this is a good idea), one cannot dictate the amounts or force the nation to buy more than they want to.

 

[sandorski]

Originally posted by: Stunt

Originally posted by: sandorski

Originally posted by: Stunt
Everyone thinks outsourcing is killing the economy and contributing to the budget deficits in the US.

A few things to consider before people start calling for "the sh!t to hit the fan".
1) From a financial perspective the US is not near as bad as many other first world nations; namely Italy, Germany, France, Japan (all have more debt and larger deficits as a percentage gdp).
2) The largest jumps in US gdp, standard of living and productivity has occured after the reduction of trade barriers.
3) Canada's low dollar valuation during the times of budget deficits and debt made it an attractive place to send manufacturing jobs. Canada has benefited significantly due to the dollar valuation much like China today. Canada's benefit was US benefit through this whole period even though the exports were much larger than imports.
4) Canada (a nation with current account balance and trade surplus) has a significant trade deficit with China as well ($30B imports vs. $6B exports) compare this to the US (42B imports vs. 243B exports)...this represents a similar ratio. If the US is ruining its economy (which i disagree) it's no worse than Canada.

Food for thought before you jump to conclusions.

4 is moot. Canada still has a Trade Surplus overall which greatly benefits the Economy. The US has done well despite Trade Deficits due to money flowing back into its' economy by International Investors. When the sh1t hits the fan, Foreign Investment will also drop as Economies grind to a halt, throwing more sh1t into the fan.

That's a huge double standard. You cannot wait for exports to outpace imports before you allow more imports. Trade relationships are mutually beneficial to both parties involved either for monetary compensation or trade of goods. Once the decision is made eliminate trade barriers (this is a good idea), one cannot dictate the amounts or force the nation to buy more than they want to.

I don't see the "double standard". I do agree that Trade is good for all involved, just pointing out that the US is in a precarious position by not having much to Export. Eventually that won't be enough.

 

[Stunt]

Originally posted by: sandorski

Originally posted by: Stunt

Originally posted by: sandorski

Originally posted by: Stunt
Everyone thinks outsourcing is killing the economy and contributing to the budget deficits in the US.

A few things to consider before people start calling for "the sh!t to hit the fan".
1) From a financial perspective the US is not near as bad as many other first world nations; namely Italy, Germany, France, Japan (all have more debt and larger deficits as a percentage gdp).
2) The largest jumps in US gdp, standard of living and productivity has occured after the reduction of trade barriers.
3) Canada's low dollar valuation during the times of budget deficits and debt made it an attractive place to send manufacturing jobs. Canada has benefited significantly due to the dollar valuation much like China today. Canada's benefit was US benefit through this whole period even though the exports were much larger than imports.
4) Canada (a nation with current account balance and trade surplus) has a significant trade deficit with China as well ($30B imports vs. $6B exports) compare this to the US (42B imports vs. 243B exports)...this represents a similar ratio. If the US is ruining its economy (which i disagree) it's no worse than Canada.

Food for thought before you jump to conclusions.

4 is moot. Canada still has a Trade Surplus overall which greatly benefits the Economy. The US has done well despite Trade Deficits due to money flowing back into its' economy by International Investors. When the sh1t hits the fan, Foreign Investment will also drop as Economies grind to a halt, throwing more sh1t into the fan.

That's a huge double standard. You cannot wait for exports to outpace imports before you allow more imports. Trade relationships are mutually beneficial to both parties involved either for monetary compensation or trade of goods. Once the decision is made eliminate trade barriers (this is a good idea), one cannot dictate the amounts or force the nation to buy more than they want to.

I don't see the "double standard". I do agree that Trade is good for all involved, just pointing out that the US is in a precarious position by not having much to Export. Eventually that won't be enough.

Canada is somehow allowed to take advantage of trade just because we export huge amounts of oil (rising in price) to the US? Without this resource, Canada's trade deficit would be no better than the US; maybe even worse.

America's economy is becoming more service based as they are able to take advantage of much cheaper products from overseas. The items exported are usually heavily value added products involving vast amounts of technology and R&D byproducts. While the US is sending $40B in turbines, heavy machinery and technology to China (all with tons of innovation involved with skilled labout), it is importing five times the cheap plastic junk and clothing; all nothing to really be concerned about.

Nobody with a college or university education is suffering in today's US economy and I personally see little wrong with a large gap in trade between these two nations.

 

[sandorski]

Originally posted by: Stunt

Originally posted by: sandorski

Originally posted by: Stunt

Originally posted by: sandorski

Originally posted by: Stunt
Everyone thinks outsourcing is killing the economy and contributing to the budget deficits in the US.

A few things to consider before people start calling for "the sh!t to hit the fan".
1) From a financial perspective the US is not near as bad as many other first world nations; namely Italy, Germany, France, Japan (all have more debt and larger deficits as a percentage gdp).
2) The largest jumps in US gdp, standard of living and productivity has occured after the reduction of trade barriers.
3) Canada's low dollar valuation during the times of budget deficits and debt made it an attractive place to send manufacturing jobs. Canada has benefited significantly due to the dollar valuation much like China today. Canada's benefit was US benefit through this whole period even though the exports were much larger than imports.
4) Canada (a nation with current account balance and trade surplus) has a significant trade deficit with China as well ($30B imports vs. $6B exports) compare this to the US (42B imports vs. 243B exports)...this represents a similar ratio. If the US is ruining its economy (which i disagree) it's no worse than Canada.

Food for thought before you jump to conclusions.

4 is moot. Canada still has a Trade Surplus overall which greatly benefits the Economy. The US has done well despite Trade Deficits due to money flowing back into its' economy by International Investors. When the sh1t hits the fan, Foreign Investment will also drop as Economies grind to a halt, throwing more sh1t into the fan.

That's a huge double standard. You cannot wait for exports to outpace imports before you allow more imports. Trade relationships are mutually beneficial to both parties involved either for monetary compensation or trade of goods. Once the decision is made eliminate trade barriers (this is a good idea), one cannot dictate the amounts or force the nation to buy more than they want to.

I don't see the "double standard". I do agree that Trade is good for all involved, just pointing out that the US is in a precarious position by not having much to Export. Eventually that won't be enough.

Canada is somehow allowed to take advantage of trade just because we export huge amounts of oil (rising in price) to the US? Without this resource, Canada's trade deficit would be no better than the US; maybe even worse.

America's economy is becoming more service based as they are able to take advantage of much cheaper products from overseas. The items exported are usually heavily value added products involving vast amounts of technology and R&D byproducts. While the US is sending $40B in turbines, heavy machinery and technology to China (all with tons of innovation involved with skilled labout), it is importing five times the cheap plastic junk and clothing; all nothing to really be concerned about.

Nobody with a college or university education is suffering in today's US economy and I personally see little wrong with a large gap in trade between these two nations.

It's not about any 1 Nation(China) having a Trade Surplus with anyone else. It's about 1(US) nation having a Trade deficit overall(including all Nations).