Thread: Understanding Trade Deficits

Understanding Trade Deficits

By KEVIN D. WILLIAMSON

• 
  

July 29, 2018 5:30 AM

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Cars at the port of Yokohama, Japan, in 2010. (Toru Hanai/Reuters)

Why 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.

We aren’t worse off because one autoworker can now do the work that once took 20 men.

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.

https://www.nationalreview.com/2018/...nomic-trouble/

What garbage!

Americans are no more harmed by the trade deficit with Germany than you are by your trade deficit with Kroger.

If more wealth is being transferred out of the U.S., we are losing. Jobs lost when industry moves to other countries because of lower wages and lax pollution regulation hurt Americans.

Trade deficits are not caused by tariffs or other protectionist policies, and neither are trade surpluses.

Tariffs do regulate deficits. I don't expect tariffs to disappear completely. They are a source of tax revenue for most countries. They can be used to adjust the different wages for the same production in different countries.

Not only are trade deficits not driven mainly by trade policy, they are not really driven by consumer behavior, either.

"Not really"? People buy at Walmart because most of the products are made in China and are cheaper than comparable products sold elsewhere that are made in America. China protect its markets from U.S. competition with tariffs.

Enough of this tripe! Just move on! Nothing to see here!

The Trade Deficit Matters, But Not How You Think

Jeffrey DorfmanContributori

Mar 12, 2017, 12:00pm 7,551 views #Economy


Peter Navarro, senior trade advisor to President Donald Trump, center, speaks with Mark Cuban, owner of the NBA Dallas Mavericks basketball team, left, before the first U.S. presidential debate at Hofstra University on Sept. 26, 2016. Photographer: Andrew Harrer/Bloomberg



With the Trump Administration underway, international trade is a hot topic and public opinion is more against free trade than ever. There are some legitimate arguments on both sides of the free trade/globalization debate. Yet, while there are some aspects of this debate where there is room for differing opinions, some facts are both beyond dispute and widely misunderstood. The best example of that category is the mistaken idea that when the trade deficit grows it hurts economic growth. Below I explain the flaw in that common misperception and why the trade deficit doesn’t matter in the way many people think it does.

The most famous accounting identity in economics is the formula for computing the most used measurement of an economy’s size, the gross domestic product (GDP). GDP is the value of everything produced in the country in a year. The formula says
GDP = C + I + G + (X-M).

In the formula, C is consumption (consumer spending), I is investment, G is government spending on products and services, X is exports, and M is imports. Thus, (X-M) is the trade surplus or deficit, depending on if the term is positive (surplus) or negative (deficit).


Many people (even financial reporters and a presidential advisor) mistakenly think that an increase in imports (which also means an increase in the trade deficit) lowers GDP. This misperception comes from a shallow understanding of the formula. Since imports (M) are subtracted in the formula, if M gets bigger, GDP must get smaller, right? Wrong!

Imported goods all end up as either C, I, or G because either consumers or the government are consuming them or the imported good is something like a big piece of machinery that ends up in a factory, thereby qualifying as investment (I). Thus, exactly offsetting the negative effect of a new import through the M term is a positive addition to one of C, I, or G.

In simple terms, imports have no effect on GFP at all. The only reason imports are subtracted from GDP is that otherwise they would add to GDP which makes no sense since they were not produced in the U.S. The subtraction offsets a previous addition and simply serves to ensure only domestically produced goods and services are counted. After all, the D in GDP stands for domestic.

While the idea that imports subtract from economic growth or activity is completely false, a trade deficit does matter in a different way. When we run a trade deficit, it is offset by an equally sized inflow of foreign investment, called a capital account surplus; similarly, a trade surplus necessitates an outflow of U.S. capital be invested elsewhere in the world. This comes from the simple fact that a trade deficit leaves the rest of the world with a pile of dollars which can only be spent in the U.S. (at least in meaningful quantities).

Thus, one important outcome of our perpetual trade deficit is that foreigners are investing in our economy. They can buy government bonds (helping to finance the government’s budget deficit), American corporate stocks and bonds, real estate (like Manhattan apartments), or they can build factories, thereby creating jobs. Without all those years of trade deficits, we might not have all those foreign car plants scattered around the country, for example. A trade deficit makes many people think we are losing jobs to overseas plants making all those imports, but the money comes back home and often creates new jobs here in foreign-owned factories.

There is room to debate the impacts of trade on affected parties. While increased trade makes the country richer thanks to the advantages of specialization, some people lose their jobs and may have difficulty in obtaining another job or one that is as good. There is also the possibility that globalization has put a damper on wages for low-skilled workers, but if so, that effect is caused by the presence of trade itself and would be unaffected by whether we run a trade deficit or a surplus. Trade creates both winners and losers, although we win in the aggregate.

People can debate the pros and cons of trade, but they should not misconstrue the impact of a trade deficit. Imports don’t lower our economic growth and any trade deficit simply means we will shortly be receiving some foreign investments. Let’s stick to the real facts about trade as the debate over globalization continues.

Follow me on Twitter @DorfmanJeffrey

I am a professor of economics at The University of Georgia and consultant on economic issues to a variety of corporations and local governments. Taking a generally free market, libertarian perspective, I use economics as the lens to analyze government policies from the local...

https://www.forbes.com/sites/jeffrey.../#496dab796058

Apparently MW endorses the idea that trade deficits are a good thing. That like Judy's claim that inflation is a good thing!

MW is apparently impressed with the self-serving formula "GDP = C + I + G + (X-M)" presented. But then there is reality! If we have steel mills in the U.S. manufacturing all the steel this country needs, then China starts importing steel to the U.S. at half the price, our steel mills will close down and our people will become unemployed. Now this works just like two companies competing for the same market. If one dominate the market, the other loses.

Now if this happened totally in this country, those displaced workers go to work for that winning company. The money remains in the country. But when the winner is another country, those workers are just out of work.

If we have equal value trade, there is equity. But if products come in and money goes out, which is what we have with China, a debt builds up. Now when a debt gets too large, companies declare bankruptcy. What do we do with a debt to China?

Even though we have a large debt with Japan, we generally don't worry about them as they are dependent on us for military protection. China has a goal to take over the world economically and militarily. So helping them build their finances and strength while we are becoming weak is no winning strategy.

Economists can make it look innocent on paper, but reality is not that simple. Ask any businessman who miscalculated how easy it would be to build a business.

It doesn't matter what the country is that we have a deficit with, whether China or Japan. We've been disgusted with the big trade deficit with Japan for decades and we still are. It's small compared to China's, but the trade deficit with Japan has been there unattended to for many decades so the loss of our wealth is on them as well as China.

Economists like anyone who works for corporations are not independent thinkers or writers. They use their education to try to legitimize the goals and policies of the hands that feed them, no different than anyone else who works for business. In other words, they're like lawyers and lobbyists.

To understand trade deficits and the harm they cause is to compare it to any business or money funded activity. When you are buying more (importing) than you're selling (exports), you're in the hole and going broke. This is no different than when a pension fund pays out more than it takes in or a government spends more than it takes in, when you are spending more on an activity than you are taking in, you're going bankrupt in that activity, that's why Trump said the other day, we'd be better off with "no trade" and he was absolutely right when he said that. Of course the idiots in the media don't understand that, but then, they've demonstrated profusely that there is really very little about our country that they understand, especially our economy, trade, border and immigration issues.

jtdc wrote (excerpt):

Apparently MW endorses the idea that trade deficits are a good thing.

Obviously you're seeing something I don't because I don't see a response from me on this thread signaling I support or don't support. I think your mind is playing tricks on you. Regardless of what you 'think' you see, showing an opposing viewpoint on an issue is not a show of support or non-support.

If you don't support the viewpoint represented in any article posted, please share your opposing viewpoint. It doesn't serve a purpose to direct disparaging comments toward the messenger.

When I share my own opinion, it'll come directly from me, not a posted article written by someone else.

Economists to Trump: It’s Not the Trade Deficit, Stupid

The U.S. president’s obsession with trade balances risks seriously skewing trade policy.

BY JESSICA HOLZER | FEBRUARY 22, 2017, 2:53 PM
Economists are increasingly alarmed at signs the Trump White House is using — and abusing — the U.S. trade deficit as a political tool to rally voters to his economic agenda, with potentially big implications for U.S. trade policy.


On the campaign trail, then-candidate Donald Trump bashed trade deals as unfair to American workers, often citing the U.S. trade deficit with China or Mexico as evidence Americans are getting outplayed at trade. He has vowed to restrict some imports in order to lower those negative trade balances, flummoxing many in the field.

“When economists hear, ‘Our goal is reduce the trade deficit,’ it baffles us,” Gordon Hanson, a trade economist at the University of California, San Diego, said. “He’s either using it as a cheap political ploy or there’s a misconception — he doesn’t understand how it operates.”


Now, White House officials are mulling a change to the calculation of the trade deficit that would make it grow, at least on paper, the Wall Street Journal reported. Under the change, “re-exports” — or goods that come into the United States and are immediately shipped out again — wouldn’t be counted as exports but would still be tallied on the import side of the ledger. Taken together, the move would swell the deficit.


Economists roundly derided the method as fuzzy math. It would “grossly and, I would say, unfairly inflate the deficit,” Gene Grossman, a trade economist at Princeton University, said.
The effort to try to create a bigger-looking trade deficit highlights the Trump administration’s laser focus on that number as a bellwether of economic strength, despite the protestations of mainstream economists. (Countries can run trade deficits or surpluses in good times or bad; they are a function of savings and investment rates more than of trade policy.)


And the new metric could provide fresh ammunition as the administration seeks to renegotiate or throw out existing trade pacts, mulls the imposition of border taxes or tariffs on imports, and generally walks away from the multilateral, free trade architecture that has underpinned global economic growth for decades.


Peter Navarro, the director of the White House National Trade Council, said in an email that the goal was “to improve our understanding of our large and chronic trade deficits so that American workers, manufacturers, and taxpayers are better served in the trade negotiation process.” He said there are “significant issues with the available data and methodologies” and said the White House would “get to the bottom of this analytical swamp.”


Many economists agree the methodology for tallying trade balances could use an update — though not at all like Trump officials are envisioning.


The calculation of a real trade balance doesn’t always capture the true value of the goods flowing back and forth, especially thanks to the growing complexity of global supply chains that weave in and out many countries. Often the final exporting country has only added a fraction of a good’s value yet gets assigned the product’s full value in the trade books.


Take the iPhone. It is imported from China, but many of its parts and intellectual property come from several countries, mainly the United States. So counting each one that enters the United States as a $200 import from China is misleading, economists say. What’s really being imported is the labor that went into the assembly of the smartphone. “It would be more informative to know how much value we are importing from China,” Grossman said.


Indeed, economists at the Organization for Economic Cooperation and Development (OECD) and the World Trade Organization have been trying to develop a so-called “value-added” methodology for tallying trade balances. It can make a big difference. In 2011, the most recent year with available value-added data, the United States ran a $275.1 billion trade deficit with China; under the value-added approach, that was cut to $178.7 billion. The contrast is starker in electronics. The 2011 U.S. trade deficit in that sector amounted to $136.3 billion; a “value-added” deficit was just $54.2 billion.


Getting a clear notion of what a trade deficit really measures — and how to best capture cross-border flows of goods and services — is crucial to avoiding poor trade policies, many economists say.


“If you want to have a better understanding of the economic impact and the economic footprint, you have to [have] a value-added perspective,” said Nadim Ahmad, who heads the trade and competitiveness division in the OECD statistics office.

Photo credit: JOE KLAMAR/AFP/Getty

https://foreignpolicy.com/2017/02/22...eficit-stupid/

LOL!! Look at those "free traders" go! They're desperate! They're saying trade deficits are no problem, but lets change the math to make them look smaller! Hilarious!!

Anything made in the US and shipped to China to be inserted or used in an IPhone is already counted in the export number. A trade deficit is the different between exports and imports, so you certainly don't want to count the export number twice, once in the actual export number and again by deducting it from the import. Accountants go to jail for that double-counting to conceal something all the time.

Why Trump is right and wrong about trade deficit

While Trump has been harping on trade deficit for thirty years – he was complaining about the Japanese in the 1980s – he’s vastly oversimplifying the issue and the solutions.

Chris Kanthan / NationofChange / Op-Ed - June 12, 2018


Image Credit: Thomson Reuters

“The Chinese are raping us” and “Canada is killing our farmers”! Such melodramatic claims from Trump resonate with many Americans, because the effects of globalization have been devastating for half the population. To his credit, Trump has been harping on trade deficit for thirty years – he was complaining about the Japanese in the 1980s. However, he’s vastly oversimplifying the issue and the solutions. This is an important topic that requires serious thoughts.

What is trade deficit?

Simply put, trade balance is the difference between our exports and imports. If we export more than we import, we have a trade surplus; but if we import more than we export, alas, we have a trade deficit!

Why trade deficit is bad

Trade deficit is transfer of wealth. Since we can now print money and borrow like a drunken sailor, it’s hard to see the adverse effects of trade deficits. However, imagine for a moment that all trade happened with gold. Every year that we have a trade deficit, our gold reserves will shrink, and we can then clearly see that perpetual trade deficit is unsustainable.
Another facet of trade deficit is its impact on money supply or circulation. Let’s say you spend $1000 on jewelry at a local store. That’s not a one-time transaction. The jeweler may spend that money on furniture; and the owner of the furniture store may use that money to pay his employee, who uses that to pay his rent, which the landlord uses to buy grocery, and so on. Thus the economic effect of $1000 can be multiple times its value.

Now imagine the catalytic effect of $9 trillion! That’s the tremendous economic stimulus we have lost in the last 17 years alone due to our trade deficit.

Symptom of jobs lost

A corollary of trade deficit is that Americans are not producing the goods that we import. Every stuff we import potentially represents a lost American job. Of course, no country is 100% self-reliant, so we have to aim for a “reasonable deficit.”

Blame China? Not so fast!

Blaming China, which is also a rising economic superpower, is a political winner. We do have the largest trade deficit with China – about $380 billion last year. However, that number is a bit fake.

Consider an iPhone that’s assembled in China and shipped to Apple in the U.S. Our commerce department will claim a U.S.-China trade deficit of about $600. In reality, China gets only about $40 out of that $600, since China merely assembles various expensive parts from Japan, South Korea, Taiwan etc.

Thus, the true trade deficit that we have with China may only be about $150 billion.

But the math keeps getting murkier!

Trade deficit also fails to include the effects of overseas operations, foreign investments etc.

Consider that GM sold more cars in China than in the U.S. last year. GM’s profit from those cars represent a transfer of wealth from China to the U.S. Similarly, corporations such as Starbucks, McDonald’s, KFC and numerous U.S. retail stores have tens of thousands of outlets all over the world. Profits from all such activities are ignored in the trade deficit numbers.

Furthermore, when foreigners buy homes in the U.S., purchase shares of U.S. corporations, acquire entire firms, or open a manufacturing plant in the U.S., those investments aren’t reflected in the import-export statistics either.

Perhaps we need to come up with a new metric that’s more sophisticated.

Who to blame?

There’s no doubt that the U.S. manufacturing has been decimated over the years. In the 1950’s, the U.S. produced 80 percent of world’s steel and cars; today, the shares are 5 percent and 10 percent respectively. The number of people in the manufacturing sector has steadily fallen over the decades and tens of thousands of manufacturing plants have been closed.

The only people to blame for this are the US corporate elites. They are the ones who championed globalization and wrote NAFTA and WTO. In their spreadsheet, the only difference between a Mexican and an American worker is that the former costs less and hence is a better employee. Walmart buys $60 billion worth of Chinese goods every year, because the executives only care about maximizing their compensation and pleasing the major shareholders.

Interestingly, neither Trump nor any politician dares to challenge the corportocracy that rules the West.

Petrodollar – the elephant in the room

Above all, here’s a shocking fact that everyone ignores: after WWII, globalists built a global financial system that needs the U.S. to run massive trade deficits! If the U.S. dollar has to enjoy the status as the global reserve currency and the dominant trading currency, then there must be a lot of U.S. dollars floating around the world. Every central bank in the world needs U.S. dollars to shore up its foreign exchange reserves. Where are those countries going to get those dollars? Answer: by selling goods to the U.S. – i.e. through trade surplus with the U.S.

Similarly, the U.S created the Petrodollar system in the 1970’s, which forces other countries to buy oil and other commodities using U.S. dollars. For example, how’s India going to get USD to buy oil from Saudi Arabia? By running a trade surplus with the U.S.

Originally, this system worked because of the so-called “petrodollar recycling” – countries like Saudi Arabia would use much of their oil revenues and trade surpluses to buy American products and weapons. However, countries around the world now have other options, and the dollar isn’t flowing back to the U.S. as it once did.

Without a trade deficit

Trump dreams of a world where the U.S. has no trade deficit. However, if that happens:

• USD will no longer be a global reserve or trading currency;
• foreigners won’t have USD to buy U.S. treasuries/bonds;
• the U.S. government will be forced to slash its expenditure, which will mean cuts to social security, military etc.;
• we won’t be able to punish our geopolitical enemies through economic sanctions; and
• in other words, the U.S. won’t be a superpower anymore!

So complex! What’s the solution?

Unfortunately, there are no simple slogans to solve this problem. Tariffs on intermediate products such as steel and aluminum will only the raise the cost of numerous consumer goods such as appliances, cars, construction materials etc. Trump can threaten a trade war and bully China/EU to buy a little more from us, but it won’t solve the fundamental problem.

Only corporate elites can really fix this by bringing jobs back to America. U.S. corporations plan to spend $800 billion on stock buybacks and $500 billion on dividends this year, which will only inflate the stock market bubble and put money in the pockets of the 0.1 percent. If the elites are patriotic, they will stop such greedy schemes and instead invest that vast sum of money to create jobs and innovative products at home. Of course, more Americans with higher-paying jobs will help everyone, the 0.1 percent included.

There are also numerous other efforts that need to be taken by the U.S. government, civil society, and individual Americans to address the systemic problems in our economy.

https://www.nationofchange.org/2018/...trade-deficit/

Originally Posted by MW

Why Trump is right and wrong about trade deficit

While Trump has been harping on trade deficit for thirty years – he was complaining about the Japanese in the 1980s – he’s vastly oversimplifying the issue and the solutions.

Chris Kanthan / NationofChange / Op-Ed - June 12, 2018


Image Credit: Thomson Reuters

“The Chinese are raping us” and “Canada is killing our farmers”! Such melodramatic claims from Trump resonate with many Americans, because the effects of globalization have been devastating for half the population. To his credit, Trump has been harping on trade deficit for thirty years – he was complaining about the Japanese in the 1980s. However, he’s vastly oversimplifying the issue and the solutions. This is an important topic that requires serious thoughts.

What is trade deficit?

Simply put, trade balance is the difference between our exports and imports. If we export more than we import, we have a trade surplus; but if we import more than we export, alas, we have a trade deficit!

Why trade deficit is bad

Trade deficit is transfer of wealth. Since we can now print money and borrow like a drunken sailor, it’s hard to see the adverse effects of trade deficits. However, imagine for a moment that all trade happened with gold. Every year that we have a trade deficit, our gold reserves will shrink, and we can then clearly see that perpetual trade deficit is unsustainable.
Another facet of trade deficit is its impact on money supply or circulation. Let’s say you spend $1000 on jewelry at a local store. That’s not a one-time transaction. The jeweler may spend that money on furniture; and the owner of the furniture store may use that money to pay his employee, who uses that to pay his rent, which the landlord uses to buy grocery, and so on. Thus the economic effect of $1000 can be multiple times its value.

Now imagine the catalytic effect of $9 trillion! That’s the tremendous economic stimulus we have lost in the last 17 years alone due to our trade deficit.

Symptom of jobs lost

A corollary of trade deficit is that Americans are not producing the goods that we import. Every stuff we import potentially represents a lost American job. Of course, no country is 100% self-reliant, so we have to aim for a “reasonable deficit.”

Blame China? Not so fast!

Blaming China, which is also a rising economic superpower, is a political winner. We do have the largest trade deficit with China – about $380 billion last year. However, that number is a bit fake.

Consider an iPhone that’s assembled in China and shipped to Apple in the U.S. Our commerce department will claim a U.S.-China trade deficit of about $600. In reality, China gets only about $40 out of that $600, since China merely assembles various expensive parts from Japan, South Korea, Taiwan etc.

Thus, the true trade deficit that we have with China may only be about $150 billion.

But the math keeps getting murkier!

Trade deficit also fails to include the effects of overseas operations, foreign investments etc.

Consider that GM sold more cars in China than in the U.S. last year. GM’s profit from those cars represent a transfer of wealth from China to the U.S. Similarly, corporations such as Starbucks, McDonald’s, KFC and numerous U.S. retail stores have tens of thousands of outlets all over the world. Profits from all such activities are ignored in the trade deficit numbers.

Furthermore, when foreigners buy homes in the U.S., purchase shares of U.S. corporations, acquire entire firms, or open a manufacturing plant in the U.S., those investments aren’t reflected in the import-export statistics either.

Perhaps we need to come up with a new metric that’s more sophisticated.

Who to blame?

There’s no doubt that the U.S. manufacturing has been decimated over the years. In the 1950’s, the U.S. produced 80 percent of world’s steel and cars; today, the shares are 5 percent and 10 percent respectively. The number of people in the manufacturing sector has steadily fallen over the decades and tens of thousands of manufacturing plants have been closed.

The only people to blame for this are the US corporate elites. They are the ones who championed globalization and wrote NAFTA and WTO. In their spreadsheet, the only difference between a Mexican and an American worker is that the former costs less and hence is a better employee. Walmart buys $60 billion worth of Chinese goods every year, because the executives only care about maximizing their compensation and pleasing the major shareholders.

Interestingly, neither Trump nor any politician dares to challenge the corportocracy that rules the West.

Petrodollar – the elephant in the room

Above all, here’s a shocking fact that everyone ignores: after WWII, globalists built a global financial system that needs the U.S. to run massive trade deficits! If the U.S. dollar has to enjoy the status as the global reserve currency and the dominant trading currency, then there must be a lot of U.S. dollars floating around the world. Every central bank in the world needs U.S. dollars to shore up its foreign exchange reserves. Where are those countries going to get those dollars? Answer: by selling goods to the U.S. – i.e. through trade surplus with the U.S.

Similarly, the U.S created the Petrodollar system in the 1970’s, which forces other countries to buy oil and other commodities using U.S. dollars. For example, how’s India going to get USD to buy oil from Saudi Arabia? By running a trade surplus with the U.S.

Originally, this system worked because of the so-called “petrodollar recycling” – countries like Saudi Arabia would use much of their oil revenues and trade surpluses to buy American products and weapons. However, countries around the world now have other options, and the dollar isn’t flowing back to the U.S. as it once did.

Without a trade deficit

Trump dreams of a world where the U.S. has no trade deficit. However, if that happens:

• USD will no longer be a global reserve or trading currency;
• foreigners won’t have USD to buy U.S. treasuries/bonds;
• the U.S. government will be forced to slash its expenditure, which will mean cuts to social security, military etc.;
• we won’t be able to punish our geopolitical enemies through economic sanctions; and
• in other words, the U.S. won’t be a superpower anymore!

So complex! What’s the solution?

Unfortunately, there are no simple slogans to solve this problem. Tariffs on intermediate products such as steel and aluminum will only the raise the cost of numerous consumer goods such as appliances, cars, construction materials etc. Trump can threaten a trade war and bully China/EU to buy a little more from us, but it won’t solve the fundamental problem.

Only corporate elites can really fix this by bringing jobs back to America. U.S. corporations plan to spend $800 billion on stock buybacks and $500 billion on dividends this year, which will only inflate the stock market bubble and put money in the pockets of the 0.1 percent. If the elites are patriotic, they will stop such greedy schemes and instead invest that vast sum of money to create jobs and innovative products at home. Of course, more Americans with higher-paying jobs will help everyone, the 0.1 percent included.

There are also numerous other efforts that need to be taken by the U.S. government, civil society, and individual Americans to address the systemic problems in our economy.

https://www.nationofchange.org/2018/...trade-deficit/

IMO, this article makes a lot of sense.