Posted on 04/02/2016 12:15:50 PM PDT by Kaslin
Donald Trump says the problem in the United States is that "we don't win anymore." Trade is his favorite example, based on our longstanding trade deficit. But in one big area, America is a big global winner, year after year. That little-known fact exposes the basic, fatal error in Trump's lament.
What he overlooks is that this country is one of the most inviting places for people abroad to invest their money. Since 2001, foreign direct investment in the United States has more than doubled. Last year, foreigners bought $11 trillion worth of stocks.
They also wanted other assets -- nearly $1.4 trillion in U.S. Treasury bonds and almost $1.2 trillion in corporate bonds. We may run a deficit on the trade side, but we consistently boast a surplus on the capital side. That's a good thing.
What explains it? One attraction is the strength of our institutions. We offer advanced financial markets, secure property rights, the rule of law, political stability and low levels of corruption in both the private and government sectors.
This year, the World Bank ranked the U.S. seventh in the world for "ease of doing business." That gives us a leg up on almost every other country, including such feared competitors as Germany (15), Japan (34), Mexico (38) and China (84). These indicators, the World Bank says, "have huge long-run implications for an economy's health, performance and growth."
Another lure is the comparative vigor of the U.S. economy. Since 2002, our GDP growth has consistently outpaced that of the European Union and Japan. Faster growth heightens the advantages of being located in the world's biggest market. The dominant role of the U.S. dollar also helps. It is the closest thing to a global reserve currency, held in large quantities by foreign governments.
People in much of the world save more of their income than we do, which means we buy more stuff than they do. That makes the U.S. a great place to sell cars, shoes, toys and computers.
One fact that Trump and Bernie Sander never mention is that our trade imbalance is all in goods. When it comes to services -- such as travel, banking services, royalties, legal advice and education of foreign students -- we export far more than we import. In each of the past five years, our surplus in services has exceeded $200 billion.
Services are important because they account for most of the world economy and are steadily growing. Since 2000, their share of global output has expanded from 67 percent to 71 percent, while industry and agriculture have shrunk. The same pattern is evident even in China.
The continuing stream of money from overseas keeps the U.S. capital account perpetually in surplus: Foreigners lend and invest more here than we lend and invest elsewhere. Americans benefit because foreign capital builds factories and stores, creates jobs and minimizes the cost of government borrowing.
Why is all this important? Because the inflow is a big and almost universally overlooked cause of the trade deficit. Think about it: If foreigners want to buy land or buildings or bonds in the U.S., they need dollars. To get dollars, they have to sell to Americans.
The little-known secret of international commerce is that foreigners can't invest more here than we invest abroad unless they also sell us more than we sell them. This is not a matter of academic theory. It's a matter of accounting.
The late economist Herbert Stein wrote the entry on "balance of payments" in "The Concise Encyclopedia of Economics." "A deficit in the current account is always" -- always -- "accompanied by an equal surplus in the capital account, and vice versa," he noted.
Confronting that simple fact means recognizing that the trade deficit is merely the flip side of a healthy phenomenon. If no one wanted to invest here, we'd be running a trade surplus -- and we'd regret it.
What economists at the Federal Reserve Bank of St. Louis noted in 2006 remains true today: "Capital account surpluses, and therefore current account deficits, are being driven primarily by foreign demand for U.S. assets" -- not by unfair trade practices, cheap foreign labor or currency manipulation.
Trump and Sanders see trade in terms that are simple, vivid and wrong -- as a competition in which exports are victories and imports are defeats. They think we are losing, but they don't know how to keep score.
Investing in Wall Street in companies now sending jobs overseas does not make new good paying jobs in the US. Only feeds the Wall Street bankers.
I disagree completely.
Completely.
We have been sold out for year. More than one entire generation.
Bring back American jobs.
It’s Townhall crap again! Just why do we post stuff from this rag? They are almost as bad as the NY Slimes! Ditto for NR, Limbaugh and Levin. They have all gone over to the dark side!
Correction:
“We have been sold out for years.”
Unfettered Trades been Great for Manufacturing. In China that is....
Yeah, you’re right...Multi billionaire businessman, Donald Trump knows nothing about trade...
Uh-huh...Yeah, riiiiight....
“Last year, foreigners bought $11 trillion worth of stocks.”
Americans should have the funds to invest in these stocks and reap the dividends. Instead they’re trying to avoid Obamacare penalties.
Foreigners are recycling our dollars buying companies and real estate..some of the companies are being absorbed by non US companies for tax advantages. The real estate investments are speculative and driving up prices. These are not positive trends.
We need to change our corporate taxes to make our companies more competitive and the US a better place to HQ companies.
He says he is going to bring overseas jobs home. How? Through force? Through federal fiat? Corporations look to give their shareholders value by making a profit and keeping costs low. Will Trump bring jobs back to have US citizens work for the same wages as they do overseas? He is unraveling and looked like a fool on the Chrissy Matthews interview. Matthews laughed in his face.
What happens when Americans can’t afford to buy the junk that’s available to them on store shelves? When people are driving around in cars that look like they belong in the junk yard?
“What economists at the Federal Reserve Bank of St. Louis noted in 2006 remains true today: “Capital account surpluses, and therefore current account deficits, are being driven primarily by foreign demand for U.S. assets” — not by unfair trade practices, cheap foreign labor or currency manipulation.”
If I interpret this correctly, the practice of selling the assets ( and I would guess real estate is a primary asset) of this country to foreigners is a “good thing!” Having the Ch1nks own an ever-increasing percentage of our land that they are able to buy with their trade surplus bucks will end up with them being able to take over our country without firing a shot! But hey, the Wall St. folks can just wall off Long Island for themselves, so it won’t be a problem.
Then we look like “Cuber”
“We have been sold out for years.”
It wasn’t the Japanese steel industry that destroyed ours; it was the entire nation of Japan, from the prime minister down to the salarymen who accepted a low standard of living for Emperor and country.
Same thing with the auto industry. Our auto industry was smashed by Japanese government subsidies and the sacrifices of the Japanese people.
How is that free trade, when foreign governments subsidize attacks on us, and our government does nothing but handcuff US industry and ram a red-hot poker up its bum?
And that’s what makes the writer of this article a drooling moron: we have never been on the receiving trade of free or fair trade, and to continue extending it can only be national suicide.
Your post is all over the place and doesn’t make much sense , kind of like Cruz’s campaign ...let’s go with your false premise that Trump has no clue about economics - why then is Cruz now parroting and copying Trump’s positions ?
“Trump lacks a basic understanding of economics and trade. Building a casino and hiring a bunch of illegal aliens to work for you does not translate into managing a national economy.”
He certainly has more understanding of trade than the freshman senators from Illinois or Texas. Certainly more understanding that the Socialist from Vermont or the shakedown artist and ex-senator/sec. of state from Long Island.
Free trade doesn’t equal fair trade. They never told us the free part was for those sucking us dry.
And another term for that is liquidation: the owners (the USA as a whole) selling off assets to pay current obligations. Pretty strange that some economists think selling off assets is a positive trend. Maybe we'll someday settle all our foreign debt by selling off Alaska, or selling off drilling and mining and timber rights on federal lands. Wouldn't that be great.
Keep on supporting the man who never met a big government program he didn't like.
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