U.S. Trade Deficit: Made in Washington, D.C.? (of course)

Heritage ^ | January 16, 2014 | Bryan Riley

[1rudeboy]

The Treasury Department recently reported that China and Japan are the largest foreign holders of U.S. government debt. China now owns $1.317 trillion in U.S. government debt. Japan owns another $1.186 trillion. It is no surprise that China and Japan are also the two countries with which the United States has the largest annual trade deficits. Here’s why:

When Americans import a product made in China or Japan, those dollars can be used to purchase U.S. exports (benefiting Americans), to invest in the U.S. private sector (also benefiting Americans), or to help finance federal budget deficits (benefiting Americans by lowering our government’s cost of borrowing).

If people in China and Japan used all the dollars they earned from exporting goods to the United States to purchase U.S.-made products, the trade deficit would be zero.

But when they use those dollars to buy U.S. Treasury securities, the United States winds up with a trade deficit. Americans may benefit from those purchases, but sales of Treasury bonds don’t count as exports.

The trade deficit today, as in 1985, has very little to do with foreign trade barriers, currency manipulation, or “unfair” trade practices. The trade deficit is driven by U.S. politicians who have borrowed trillions of dollars from China, Japan, and other countries that could otherwise have been invested in American industries or spent on American-made goods and services.

As ABC News reported in 1985, “The most basic [trade] problem is agreed to be the budget deficit. But nobody here seems able to do anything about that.” In this regard, little has changed in the past 29 years.

[CowboyJay]

“That’s why so many people are eager to move to places like Nigeria, Venezuela, Libya, Uzbekistan, Iran and Angola.”

That’s what happens when countries base their entire economy on exporting resources instead of using them to support value-added industries.

[ex-snook]

"Now that directly points at the nut of the argument, here. Is the SS system ruined because some jobs were "exported," or because someone spent the SS money? "

The SS system was designed for American workers to support retired workers where both they and their employers would support the system. Let's say 10 to 1. Well there is still 10 workers but 7 are in China. When the jobs were EXPORTED neither the worker or his employer pay into the system. The unemployed don't pay into the system but will receive money. When these jobs were done by American companies they supported the system. When the jobs are in China, they get a free ride. An advantage for foreign producers. Level the playing field, tax the imports.

[Moltke]

But when they use those dollars to buy U.S. Treasury securities, the United States winds up with a trade deficit. Americans may benefit from those purchases

The ones that benefit are those on benefits (he quipped).

[Moltke]

If Trade Deficits were a good thing, as the statist Free Traders claim, Africa would be the economic powerhouse on the planet.

A classic example of non sequitur (no offense!). In the history of mankind, at least the past few millennia, no technological advancement (i.e., that which drives wealth generation) has sprung forth from Africa (perhaps with the exception of S.A. pre-Mandela). N.b., this is not an endorsement of trade deficits. Africa is not an economic powerhouse because it simply lacks the capability of being such, for all its natural treasures.

[Toddsterpatriot]

The budget deficit is a result of the trade deficit.

That must be why the trade deficit dropped to zero at the end of the 1990s.

Oh, wait........

[Toddsterpatriot]

You have demonstrated that Free Trade has categorically failed.

We must pay higher prices now, because Danny is bad at math!!! LOL!

It’s supporters cannot prove it works.

Less government interference in trade "doesn't work"?

If Trade Deficits were a good thing, as the statist Free Traders claim,

Quick, link to 2 Free Traders who made that claim. Should be easy for you.

[Toddsterpatriot]

"The budget deficit is a result of the trade deficit."

You hit the nail right on the head.

One cannot exist without the other.

Is that why Japan has had a trade surplus, for decades, and has an even higher national debt than we do?

[1rudeboy]

Where did the SS money that our workers paid into the system go? Just a quick answer necessary.

[Mase]

That’s what happens when countries base their entire economy on exporting resources instead of using them to support value-added industries.

Ah, sounds like government is the problem. So why are you demanding we create a larger and more influential government to solve a problem that government created in the first place?

Or are you saying we need a bigger, more intrusive government to dictate to free people how they should manage their private property? You know, comrade, to ensure that individuals do what's in the best interest of the collective.

[CowboyJay]

Japan’s situation is a little different. Their economy’s only about a quarter the size of ours, and their debt might actually service in the long run because they still have a positive cash flow.

But more to the point - if we hadn’t been running huge trade deficits the last 30 years, Japan and China would not have the money to buy our treasuries.

Nobody would. There wouldn’t be enough liquidity on the planet for us to have run up a $17 trillion tab. So I’ll stand on my assertion earlier in the thread that we could not run either our current trade deficit or budget deficit without the other.

Why do you think the Dem higher-ups have such a massive heart-on for free trade? Because it’s the only way to fund the leviathan without resorting to outright money-printing.

[Mase]

Exactly. This is the conundrum of big government conservatives, otherwise known as protectionists, that leaves me scratching my head. Eternal mystery......

[CowboyJay]

Me? I’m a borderline anarchist. I’d raise tariffs to the ceiling on all value-added goods, and make the government live off that.

I see nothing inherently collectivist about that approach. It was in the 1787 Constitution, after all. Are you saying our economy was somehow depressed by the tariffs that were in place during the 1950s & 1960s?

I hope you do realize that free trade and open immigration are the Statists’ meal ticket.

[1rudeboy]

That’s not true. The difference, when our politicians run up the tab anyway, simply would be a higher interest rate on the debt. What makes you think that they care?

[Toddsterpatriot]

You said one can’t exist without the other. Japan shows your claim is wrong.

[Mase]

I’d raise tariffs to the ceiling on all value-added goods, and make the government live off that.

Right. You keep me posted on your efforts to repeal the 16th Amendment. Good luck with that. I thought we were dealing with the real world.

Are you saying our economy was somehow depressed by the tariffs that were in place during the 1950s & 1960s?

Tariffs are taxes. They increase the costs to consumers and give government more influence over the economy. I'm in favor of government having less control over the economy. But hey, that's just me. Before WW2, less than 5% of the total revenue the fedgov received came from tariffs. Good thing we didn't have to rely on that to win the big one and fight the cold war. Today, tariffs account for about 1% of total revenue, and the government could certainly get by with less of our money. Lowering taxes, via lower tariffs, would put more money in the pockets of American families, and I'd say that's a good thing.

I hope you do realize that free trade and open immigration are the Statists’ meal ticket.

What a crock. To believe that statists want the government to have less control over the economy - because that's a result of free trade - is loony tunes. Equating free trade with open borders proves only that you don't have a real argument against the freedom to trade, and that you really don't have any idea what you are talking about. I've never understood why conservatives come to a conservative site to argue in favor of bigger government, higher taxes and less liberty. But here you are....

[CowboyJay]

"To believe that statists want the government to have less control over the economy - because that's a result of free trade - is loony tunes."

Wrong. They get 95% of what they want on the environment, because all the industrial growth is gone overseas. They get a rock-solid gov't dependent voting block, because all the new jobs are overseas. They don't have to worry about pesky small business owners popping up and voicing dissent, because nobody has enough disposable income to start one anymore. And for dessert, they get a blank check to buy votes with from the countries where all the jobs and pollution are going.

And the idiot GOP keeps playing right into their hand.

[Mase]

Yeah, I can see where all that free trade is killing our industrial production. Damn all that freedom! Clearly, it's killing us. Just think where we'd be if the government completely controlled with whom and what we traded. How can anyone believe that markets, involving millions of people making voluntary decisions in which everyone benefits, know more than a bunch of government bureaucrats who act in the best interest of the state. Sheesh.

When you go looking for statists, you won't have to look for very long...... provided you have a mirror

[Cringing Negativism Network]

Right on.

China sells America 400 trillion every year.

America sells China in return, just 100 trillion.

Meaning each and every year, America buys 300 trillion more from China, than China buys from America.

This is not good at all. Bring back American jobs.

[Cringing Negativism Network]

Our trade deficit with China is on track to set yet another record, this year.

(waiting on December data)

[CowboyJay]

"Yeah, I can see where all that free trade is killing our industrial production."

Pay close attention to the part of the graph starting about the time China joined the WTO.