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.
Mathematically speaking, this is correct. We learn in macroeconomist that a trade deficit, which favors our trading partner, is the reciprocal of the current account surplus, which favors us. We net out evenly.
However, just because the two balances are mathematically offsetting, does not mean it is an ideal trade situation. There are benefits offsetting the disadvantages, but the costs and the benefits are experienced by different parties!
The trade deficit is harmful to the manufacturing sector that has the deficit and the capital surplus is a benifit to the banking investment sector. Since banking and investment corporations tend to be multinational, and manufacturing tends to be domestic, the trade deficit can and usually is a net loss for the local communities who lost jobs and revenues while they often don’t share in any of the benifits.
Are you really that stupid? Tariffs funded the US government for 130 years before the income tax that Free Traitors™ like you and Cruz love so much.
More tariffs, less income tax.
And no one believes the fairly tale that Smoot - Hawley caused the Great Depression. Take your rewriting of history elsewhere.
So trade deficit are good because foreigners are using that money to buy “American” corporations? How is that good? First they told us that we would more than make up for loss of jobs with new jobs here because foreigners would buy products from our companies. Then those companies moved their manufacturing there. Now they are moving whole companies overseas. Thirty years ago we were unquestionably the driving economy in the world. Now China is neck and neck and growing three times as fast, and our working and middle classes are dying. That’s the real world results. But the GOP doesn’t care as long as the stock market goes up.
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.Where are the mindless idiots telling us we're trading worthless paper for material goods?
Free Traitors™ are a cynical lot and don’t care about silly nationalist sympathies. They are stateless soulless creatures. The make Judas Iscariot look like piker.
Judging by posting history, it seems you’re in the tank for anyone but Trump.
When did Hillary move to Long Island?
When all the C-level execs started worrying themselves only with return of shareholder value, the business itself as a going concern ceased to be primary. The long term health of the company, let alone the history, the community, the employees and the health of the economy all took a backseat to increasing the stock price at that moment in time. Short term thinking with no future orientation has inexorably led to decline. There is something to be said for the old patriarchy and how they ran their companies. What we have now is basically part it all out if it makes more money at present.
That's an outright lie...
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.
Yah right...I'll tell ya who really knows how to keep the score...The 95,000,000 million Americans who have given up looking for a job...Who writes this nonsense??? And worse, who's dumb enough to fall for it???
>> My post makes perfect sense to anyone who can grasp the concepts it presents <<
Of course. But just don’t expect that kind of “grasping” from the mercantilist fans around here. And don’t waste your time trying to educate them.
>> judging by posting history, it seems you’re in the tank for anyone but Trump <<
I’d say that’s a most admirable history.
Is it any surprise that foreign business people use the great profits that they make from unfair trade agreements, agreements that benefit foreign countries and hurt the USA, to invest in USA?
Corrupt USA trade negotiators are essentially telling foreign investors, take it (the USA), it’s yours.
I guess you don't approve of capitalism and think that lowering costs to make a profit is unethical and immoral-sounds a lot like Bernie.
Name calling and insults from a Trump supporter- another fine example.
“I would love to hear your plan. Is it better than Trump’s or the same? Do tell.”
No. Figure it out for yourself. Maybe some exercise will get your little grey cells working better.
“I guess”
As expected, your guesses are as outré as your views on industry and trade.
From the responses I am getting it sure does seem like a losing cause.
You don’t have a plan and neither does Trump. No substance.
“You don’t have a plan and neither does Trump.”
Right. Because you are so brilliant that if there were a way, you would certainly see it before all others.
We're in a trade war now. Only a stupid uniformed person would think we are not currently in a one sided tariff war with the rest of the world. Dumb.
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