Posted on 07/30/2018 9:16:17 AM PDT by SeekAndFind
Trade deficits are not a sign of economic trouble, and trade surpluses are not necessarily a sign of economic health.
The problem with all this trade-deficit talk is that nobody seems to know what trade deficits are, what they mean, or what causes them.
A trade deficit is nothing like a budget deficit. Each year’s federal budget deficit adds to the total debt owed by the federal government. Trade deficits don’t do that, which is one reason why “trade deficit” is not a very useful term. A trade deficit is just a bookkeeping entry, not a debt that has to be paid. Countries don’t trade — people do. Americans are no more harmed by the trade deficit with Germany than you are by your trade deficit with Kroger.
Trade deficits are not caused by tariffs or other protectionist policies, and neither are trade surpluses. You wouldn’t know it to hear President Trump talk, but the United States and the European Union have on average almost the same tariff rate: 1.7 percent for the United States vs. 2.0 percent for the European Union, according to World Bank data. (Obviously, there is significant variation by item; Germany imposes a 10 percent tariff on imported automobiles, and the United States charges a 25 percent tariff on light trucks, a consequence of the so-called Chicken War.) In both cases, those average tariffs have been cut by nearly half since the early 1990s. China, which gives the Trump administration such agita, has cut its average tariff by nearly 90 percent since the 1990s, from a very high 32.2 percent to 3.5 percent — and its economy has thrived during that period.
Not only are trade deficits not driven mainly by trade policy, they are not really driven by consumer behavior, either. It’s true that many Americans prefer German cars and French wines — and cheap electronics and T-shirts made in China — but trade deficits mostly are the result of several other causes: macroeconomic factors such as tax policies and savings rates, the strength of a country’s currency, and, most important, its attractiveness to investors. Ironically, the corporate tax reform that President Trump is rightly proud of may contribute to higher trade deficits by making the United States a more attractive place to invest. Money invested in businesses and factories is not available for the purchase of consumer goods.
Trade deficits are not a sign of economic trouble, and trade surpluses are not necessarily a sign of economic health. The last time the U.S. ran a trade surplus with the world was 1975, when our economy was in a shambles. Britain ran a trade deficit from Waterloo to the Great War, a century marking the height of its power, and it grew vastly wealthy.
How? Consider our own trade deficit.
When the Germans run a $63 billion trade surplus with the United States, as they did last year, that means they have $63 billion on their hands. What can they do with that money? They can sit on it, as the Chinese and many other people around the world do, preferring to keep their savings in strong and steady dollars rather than in yuan, euros, or pesos. They can use it to buy dollar-denominated assets such as shares in Apple or Ford. Or they can invest it directly in the United States, as the Germans have with their automobile factories in the United States.
Far from being victimized by such trade, Americans are enriched by it. We get $118 billion in German-made goods in exchange for $54 billion in U.S.-made goods, which leaves $64 billion over to invest in American assets. Do you know who the largest U.S. automobile exporter is? It is BMW Manufacturing, which builds SUVs in Spartanburg, S.C., where it employs more than 9,000 people. Our trade deficit with Germany made that possible — that’s where the money to build the factory came from. Ask the autoworkers in South Carolina whether they think that’s a good tradeoff.
BMW, like Mercedes-Benz and General Motors, gets a lot more value out of each worker than it used to, through massive investments in robotics and other technology. American factories produce more than they ever have — our factory output has nearly doubled since 1990, and is much higher than it was in the so-called golden age of the 1950s and 1960s — but they need fewer people than they once did. As manufacturing payrolls have declined slightly, employment in other parts of the economy has grown substantially, and that — not trade deficits — is why manufacturing’s relative share of employment has declined.
We’ve seen that before: with farm jobs. Today, a small number of skilled workers operating sophisticated machinery on cotton and wheat farms can do the work that once required hundreds or thousands of hands. The United States is not worse off because fewer people work as farmhands: We are better off — radically. And we aren’t worse off because one autoworker can now do the work that once took 20 men.
U.S. farmers are the best in the world at what they do. The Chinese may talk a good nationalist game, but when Chinese bellies rumble, they are filled with Iowa-grown soybeans. One-third of U.S. soybeans are exported to China, and not because of some Machiavellian trade scheme carried out by Washington. And not because the Chinese are suckers, either. It’s a case of best product, best price.
It was good while it lasted.
President Trump now proposes to spend $12 billion to bail out U.S. farmers hurt by his batty trade war. That figure will grow if the trade war continues.
It took decades of hard work and innovation to make U.S. farmers the best in the world at what they do. It took the U.S. government about two weeks to make them into welfare cases.
Worse, the Trump administration is doing so for no good reason, because it doesn’t really understand trade deficits.
All our farmers really need is for the Trump administration to stop helping them.
Three decades of never-ending trade deficits are pretty much a sign of trouble.
Author wants the same ol’ same ol. Sorry, that led to plant shutdowns and a move to a service economy with lower wages.
I have a 100% trade deficit with my local grocery store... is that bad?
OMG. "Economists" in this country are joke and every other country knows this and takes advantage of their lack of sophistication in things involving trade.
Kevin Williamson is a notorious anti-Trumper. While his argument may seem to make sense on a country’s balance sheet (and I’m not sure it does), what he neglects are the detrimental effects the trade deficit has on American jobs.
“Do you know who the largest U.S. automobile exporter is? It is BMW Manufacturing, which builds SUVs in Spartanburg, S.C., where it employs more than 9,000 people. Our trade deficit with Germany made that possible — that’s where the money to build the factory came from. Ask the autoworkers in South Carolina whether they think that’s a good tradeoff.”
Then what about all the other factories that have been shipped overseas?
Kevin Williamson, the same National Review writer whose essays routinely ooze contempt for working class whites.
Governmental manipulation of money and labor is the problem, trade becomes weaponized.
Increase our IMPORT tariff on EU cars to 25% watch how many (and how fast) Kraut Car factories pop up in the USA! Ha!
The author passes from the acceptable to the dubious. “Not necessarily” can mean sometimes, often, or usually. A similar argument would be to point that stocks often rise for companies with zero profits, and to conclude that profit doesn’t matter.
High trade deficits can lead to unemployment and loss of industries. And has led to that for America.
Ask Greece how years of high trade deficits helped their economy.
High trade deficits can lead to unemployment and loss of industries. And has led to that for America.
Ask Greece how years of high trade deficits helped their economy.
“I have a 100% trade deficit with my local grocery store... is that bad?”
microeconomics
noun
the part of economics concerned with single factors and the effects of individual decisions.
macroeconomics
noun
the part of economics concerned with large-scale or general economic factors, such as interest rates and national productivity.
Funny how often amateur economists can’t tell the difference
The NR loves "theories" and "academic" dorm room arguments. The problem is when some foreign power is using your "theory" to kick your ass, it's time to realize that the "theory" isn't worth a warm bucket of spit.
Trade deficits would make sense if we had real economic growth and a sustained tight labor market.
We haven't had much real growth in twenty years (more if you discount the 90's asset bubble).
Williamson is just another "free trade" imbecile who dishonestly refuses to recognize that will never have anything remotely resembling "free trade" with most of the rest of the world, especially East Asia, whose entire development model is predicated upon predatory mercantilism.
“”Economists” in this country are joke and every other country knows this and takes advantage of their lack of sophistication in things involving trade.”
........................
Imo, it’s not because they’re idiots (although economists, by and large, all over the world, are), it’s because they are leftists.
The leftist narrative is that the US of A specifically, and The West, in general, must be made to suffer. They do believe that we “owe” the world everything and deserve nothing for ourselves.
All of our success must be given away to the more deserving.
They are, by default and inclination, enemy of the US and all the rest of us.
We refuse to deal with them as enemy, therefore, we are the stupid ones.
That's what happens to our money; it comes back here to BUY US, and then they OWN US. It's good that I speak German, so I can be of use to our new masters. I think I would probably struggle with Mandarin, so I'll sell myself to the Germans.
RE: That’s what happens to our money; it comes back here to BUY US, and then they OWN US.
Let’s say the Germans buy our companies ( the way our mutual funds buy foreign companies via the international funds ), what follows?
Isn’t it in their interest to see that their money grows?
Which means of course that would want the companies they own to PROSPER, not DECLINE.
I fail to see what the problem is here.
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