The U.S. Trade Deficit Is Not A Debt To Repay

Forbes ^ | Mar 22, 2016 | Dan Ikenson

[expat_panama]

It’s a presidential election year so the quadrennially-maligned U.S. trade deficit is taking its lumps. Donald Trump says the trade deficit means the United States is losing at trade, and it’s losing because U.S. trade negotiators aren’t smart enough. Bernie Sanders believes the trade deficit deprives the economy of production and good jobs. Meanwhile, some of the economics commentariat argue that trade deficits are bad because they represent a burden on future generations – a debt that must be repaid.

Trump and Sanders are both wrong... ...the debt argument is being used to wrap trade skepticism in a moral sheen it doesn’t deserve...

...central point is that trade has to be in balance because, in his example, the Germans aren’t willing to exchange the cars they produce for pieces of paper (dollars) indefinitely. Eventually, Americans will have to accept the return of those dollars for real output and that, ultimately, running a trade deficit is just an intertemporal shifting of the burden of production and the reward of consumption....

...a trade deficit does represent a loan, but that loan doesn’t always have to be paid back...

...Let me assure you that Americans, who part with hard-earned dollars for every transaction, don’t think they’re getting stuff for free. But here’s why Smith is wrong on the broader question. There’s a clearer, more instructive way to conceptualize the issue. The United States runs a trade deficit with the rest of the world because Americans spend more dollars on foreign-produced goods and services than foreigners spend on U.S.-produced goods and services. The dollar value of U.S. imports exceeds the dollar value of U.S. exports, so our trade account is negative. It’s in deficit. That’s straightforward.

[expat_panama]

“just what is the rest of the world doing with all those dollars?”

You mean besides China financing their military buildup?

Hey wait, we can't be saying that all those Chinese missiles were bot at U.S. factories. Like, their serviceman are certainly not being paid in U.S. dollars.  To imagine that the PROC gov't expanded their war dept. using American dollars is (let's be polite here) --OK, simply not believable.

[jospehm20]

How do you imagine they are getting the wealth to pay for it if not through trade?

[Toddsterpatriot]

Don’t be silly, of course US dollars help their military.

[expat_panama]

How do you imagine they are getting the wealth to pay for it if not through trade?

Imagine talk is really not what we need here.   Let's use observed dollar totals for spending and sales. 

In 2015 China's total sales of foreign goods and services  was about $600B more than their purchases (U.S. share = $91B).  Now, that would be plenty of money to cover their $150B 2015 military budget (about half their total gov't spending) --providing they were able to pay their personnel and suppliers in Euros, pounds sterling, and dollars (Australian, U.S., Canadian, etc.) but then they couldn't pay off their foreign $600B trade deficit in their purchases of land, bonds, design rights, and buildings.

Here's what we got: China's 2015 gdp was somewhere between $12T and $20 depending on who you talk to and as we all know (I hope) $1T = $1,000B. Their government can easily sponge off their economy just like ours does.  See for yourself:

https://www.census.gov/foreign-trade/balance/c5700.html

http://www.tradingeconomics.com/china/government-spending

http://www.tradingeconomics.com/china/gross-national-product

 

[Toddsterpatriot]

Here's what we got: China's 2015 gdp was somewhere between $12T and $20 depending on who you talk to.....Their government can easily sponge off their economy just like ours does.

Yes. And when they want to buy materials and equipment for their military from other countries, it's a lot easier when you have a huge pile of dollars. Commie currency isn't the most trustworthy.

[jospehm20]

I think you are missing my point. The money they use to run their government, including the military comes from China manufacturing and selling stuff. We are their biggest partner so we in effect fund a lot of their military buildup. I also read that the US thinks the ChiComs are underreporting there military spending by about 100%. That military budget may be closer to $300B than $150B.

[expat_panama]

...we in effect fund a lot of their military buildup...

OK, so you feel very strongly about China's military being funded by Americans.  Everyone's got feelings.  As far as I'm concerned I want national policy to be based on facts that we can see and not on your feelings.  You're convinced; we all know that, and if your goal is to rant then that's nice but it's my bed time although Todd's more of a night person than I am so maybe he'll listen.

If you're trying to explain your point to me then I can be convinced here and now by facts and you can tell me what you are saying in money numbers.   If you say the Chicom mil budg 2015 was between $150B and $300B then please say about how much of that comes from American funds that are what, donated?   When you got a number give me a link to where it comes from.

[expat_panama]

After a good night's sleep I think pieced together what you may be saying --the idea being that when Americans buy the output of Chinese factories that some kind of money goes from the U.S. to China in payment.  In 2015 Chinese goods bought by Americans cost $91B more than goods sold to them, and that should mean by the end of 2015 the Chinese socked away a cool $91B that they could spend on their armed forces.

Is that what you're saying?

[jospehm20]

Yes, only it is 4X more than $91B. The article says it is $365B.
http://cnsnews.com/news/article/terence-p-jeffrey/365694500000-merchandise-trade-deficit-china-hit-record-2015

[central_va]

..a trade deficit does represent a loan, but that loan doesn’t always have to be paid back...

Once "conservative" writers are jumping the shark all over the place. We've crossed into some surreal place where down is up and left is right.

[central_va]

BTW, with China, the money is infact coming back in the purchase of stocks and real estate by Chicap investors.

We're sentencing our grandchildren and future Americans to a life of renting from foreign investors. Our descendants are going to hate us for what we've done to them. I am not waiting; I hate Free Traitors™ now.

Baby boom generation; worst generation of Americans ever.

[expat_panama]

...the Chinese socked away a cool $91B that they could spend on their armed forces. Is that what you're saying?

Yes, only it is 4X more than $91B. The article says it is $365B.

Thanks.  CNSNEWS says they got the number was according to data from the BEA's press release dated Feb. 5, 2016.   So if you're happy w/ the BEA then we may want to go with their latest numbers dated March 17, 2016 which says imports of goods'n'services minus exports to China for 2015 now is coming out to $338,010M.

Close enough, for example some data says Hong Kong is China and others say it isn't; the exact number isn't the issue.  What I'm getting to is that while Americans spent money on Chinese goods'n'services, they turned right around and spent those dollars on buying $96,093 in stocks/fund shares, -$130,156 in bonds/T-bills, plus real estate, bank deposits, patent rights, etc. all adding up to an equal amount.

China didn't "sock away" any dollars.  The bought stuff from the U.S. with those dollars.

[Toddsterpatriot]

China didn't "sock away" any dollars. The bought stuff from the U.S. with those dollars.

And they can use those dollars to buy stuff for their military from someone other than the US.

[expat_panama]

...they can use those dollars to buy stuff for their military...

Todd, I just realized that jospehm20 is absolutely correct saying that US/China foreign trade dollars could in fact be used by the PROC to fund its military.   Those BEA numbers showed that in 2015 Americans sold about $140B of goods'n'services over there and got paid in Chinese money.  If we'd only used it to buy Chicom gov't bonds then it would've just about covered it.  Didn't happen though, what we actually was to spend the $140B on Apple products.

jospehm20, I'd be grateful if you'd please tell us your thoughts on how China's bought $1,200B in U.S. gov't bonds, enough to completely fund the entire U.S. military budget for 2 or 3 years.  Does that make you like US/China trade?

[jospehm20]

So you are asking me that because China lends us back a portion of the money it makes from us, does that make me like trade with them? No. I think the correct answer is to make more of the stuff we buy here and quit paying for China’s military buildup. We should quit giving them our technology and make our own stuff. We are the primary target of their military build up and I think it is stupid to help our enemies fight us

[Chgogal]

Here is an amusing little tidbit from yahoo finance:

http://finance.yahoo.com/news/world-map-shows-countries-scaled-133900782.html

Enjoy! Happy Easter!

: )

[expat_panama]

Whoa, that is FANTASTIC!  [printing out/putting it on the wall]

It also shows how most of the world's wealth was created and stays in the U.S. --not bad for 1/20th of the world's population.  This relates to what we were just chatting about here --and jospehm20 was saying that--

...China lends us back a portion of the money it makes from us...

--and we need to remember that all those "trade deficit" numbers from the BEA came w/ other BEA numbers showing that it's not just "a portion" --it's all the money.  Every penny of that 'trade-deficit' comes right back buying not only T-bills but also stock shares, buildings, etc.

Today especially is a very good day to remember that money by itself isn't worth anything, it's only when we use it that is means anything.

[jospehm20]

That is a pretty worthless statistic unless you are heavily into stocks like a small portion of the population is. What about the other 90% +of the people here? Do you think they should take all the spare cash from their minimum wage service job and invest in the market?