Why is a trade imbalance bad?

[Genx87]

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.

The United States is the #1 or #2 exporter.

 

[sandorski]

Originally posted by: Genx87

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.

The United States is the #1 or #2 exporter.

True, but still not enough.

 

[3chordcharlie]

Originally posted by: Genx87

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.

The United States is the #1 or #2 exporter.

Sigh... trade balances aren't very important, but they do represent wealth leaving a country. If you trade money for a television, the television loses value, and the money doesn't (assuming it is even somewhat invested).

That doesn't make it a bad thing, and it doesn't even mean that the trade deficit is producing deleterious effects on total wealth in the country (your economy may be more productive due to imports, even if those are not balanced by exports).

It does mean that you have outstanding currency which can be brought into play in your domestic economy by people with no interest in that economy. Again, this isn't good or bad, but it is.

From an 'empire' perspective, you would prefer a huge trade deficit, and a complementary positive level of net foreign investment, meaning you more or less already 'own' your imports domestically. This is, of course, not good for the rest of the world, but it is good for the domestic economy.

 

[imported_redlotus]

I think that your post doesn't take everything into account. Maybe you could shed a little light on this for me (I am being serious here--it'd be just fine with me if I missed something).

Originally posted by: dullard
The trade imbalance is probably the most misunderstood topic when it comes to economics. To put it simply: if you can afford to buy more than you can sell, then you must be in a pretty good situation. And I hope you want us to be in a good situation. Yet, so many people wish we were in the exact opposite situation.

Lets look at the two possible extremes. I realize that neither extreme will ever happen, but it clearly shows which side is more desireable.

1) Near infinite trade deficit. In this extreme, we sell nothing to foreign countries (we keep everything we produce for ourselves). Also, we buy everything the foreign countries make. Need more money, no problem. Just print more up, send these worthless pieces of paper out of the country and get all of the world's products ourselves. We get everything and it costs us nothing. What a wonderful time that would be for America. When 300 million people split up the entire world's pie, each of the Americans gets a lot of the goods/services. Heck, we can all get just about anything we want at any time because we'd have everything!

Let's just say, as an example, one corporation is in charge of importing and selling all of these products. This year the company imports $300 billion worth of goods from countries around the world. Since the company can only take in as much money as it pays its workers, the government would have to print up an extra $300 billion just so that the company can afford to stay in business (i.e. break even). However, since the government has increased the money supply, the company has to buy the same amount of goods for $330 billion next year. On paper this might look good because our GDP has gone up 10%, but are we really gaining?

Yes, I know that this is greatly simplified, but is my argument really missing anything? How is it a good thing that our 100% of our GDP increase would be dependant on the decreasing value of the dollar? And this also assumes net zero population growth, but you could adjust the numbers proportionally and raise the same question.

2) Near infinite trade surplus. In this extreme, we sell everything we make (we keep nothing for ourselves). Also, we don't buy any foreign goods/services. Think about it. This will "fix" the trade deficit problem we've had for all these long years. Now think further. Americans have no food, no cars, no electronic gadgets, no toilet paper, nothing at all. This is the extreme of total and utter misery.

I don't disagree that this would be extreme hell to live through. However, I have to ask why having a near infinite trade surplus automatically precludes internal consumption. Why can't net surplus=gross surplus even when we consume some of what we produce?

But of course, we aren't in either extreme. Now, which extreme would you rather be closer to? I'll choose a trade deficit any day and any time. The benefits are still there. Plot a graph of GDP growth vs Trade Deficit. You get a nice trend that appears. The larger the trade deficit, the larger the US GDP grew in that year. In years when the US had a recession, the trade deficit was near zero. Also, that benefit extends out into the future. In years with an increase in the trade deficit, the next year had more manufacturing jobs, and a better GDP. In years with a decrease in the trade deficit, the next year had a massive loss of US jobs and a much worsening GDP.

All that and people think a trade deficit is bad.

No, a trade deficit is not a cause of bad things. A trade deficit the result of good things. Don't mix up cause vs effect. The key is to be as close to extreme #1 as we can be while maintaining stability (being all the way to extreme #1 for a month is bad if it means next month we swing all the way to extreme #2.)

I guess I just really don't understand what's wrong with a perfect trade balance. Would it be unsustainable if we consumed most of what we produced and then trade our surplus in exchange for something that other countries have in surplus? Would this be bad for GDP, or even more important, real GDP when inflation and dollar-value loss is taken into account?

-red

 

[Schadenfroh]

Want more manufacturing jobs in the US to balance trade?

Here is a few ways to start:

[*]Eliminate minimum wage
[*]Eliminate environmental regulations
[*]Eliminate unions
[*]Kill all the lawyers

With the exception of the last one, is it really worth it to balance trade?

 

[WhipperSnapper]

The problem is that we do pay back the trade deficit -- not by selling our goods and services, but by selling our ASSETS. They use the American dollars to buy American land and capital, which means that Americans are more serf-like, renting the land and working for the owners of the capital.