Thread: Understanding Trade Deficits

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.

Originally Posted by MW

IMO, this article makes a lot of sense.

Wow! What a revelation! You re-quote what you already quoted, then agree with yourself. Then you object to my concluding that you agree with the agenda being pushed.

Like from the article you endorse:

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.

A good piece of misinformation that MW buys hook, line, and sinker!

New York Post:
General Motors produces the Buick Envision exclusively at a factory in Shanghai, mainly for the Chinese market. About 32,000 of the vehicles, which sell at a base price of $34,065, have been sold in the US since the company introduced the compact SUV to the US market last summer.

So those vehicles are made by Chinese, the profits go to China, and the majority of cars are sold to Chinese! Very little of the profits go to those in the U.S.

The same for the other companies listed. Starbucks. KFC and those numerous other stores are manned by people in those countries, and often gets supplies from other than the U.S. It is not the same as manufacturing the product in the U.S. them exporting to for sale in other countries.

But that is the diversion these "economists" use to convince MW that trade deficits are a good thing!

Originally Posted by jtdc

Wow! What a revelation! You re-quote what you already quoted, then agree with yourself. Then you object to my concluding that you agree with the agenda being pushed.

Like from the article you endorse:A good piece of misinformation that MW buys hook, line, and sinker! So those vehicles are made by Chinese, the profits go to China, and the majority of cars are sold to Chinese! Very little of the profits go to those in the U.S.

The same for the other companies listed. Starbucks. KFC and those numerous other stores are manned by people in those countries, and often gets supplies from other than the U.S. It is not the same as manufacturing the product in the U.S. them exporting to for sale in other countries.

But that is the diversion these "economists" use to convince MW that trade deficits are a good thing!

Okay, you're just attempting to bait a ridiculous argument now. Well, I'm not biting.

Originally Posted by MW

Okay, you're just attempting to bait a ridiculous argument now. Well, I'm not biting.

Couldn't think of a defense for it, huh?

Originally Posted by jtdc

Couldn't think of a defense for it, huh?

No, just view your posting as intentionally baiting me into an argument over petty opinions of no real substance.

For example:

Many, like Judy, will add a comment agreeing or disagreeing with the article they posted. Sometimes they post an article to show how absurd the writer is. But unlike you, they let it be known that they don't agree with the author of the article.

Sorry for not meeting jtdc's standards on my posting techniques. Striving to be like Judy is not one of my goals in life. Judy's Judy and I'm me, but thanks for caring enough to tell me 'how' I should act and post.

Originally Posted by MW

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

MW is sure buying into the "economist's" agenda!

Originally Posted by jtdc

MW is sure buying into the "economist's" agenda!

You and Judy are two peas in a pod.