The US has had a trade deficit since 1975, so is the US trade deficit really such a bad thing?
In: 436
[deleted]
Not particularly bad, it means the USA is getting a higher value of stuff shipped in than shipped out.
The potential downside is that the USA could become too reliant on imports and unable to cope when something disrupts them or you have an issue when too much of your currency is controlled by foreign entities but none of those are necessarily issues, just potential issues.
A trade deficit reduces the value of a currency over time.
But the US is in a really weird place due to the dollar being the currency used for trading oil. Which props up the value a currency the US can freely print. Meaning the US can afford larger trade deficits than other nations could even dream of.
I’ve seen many estimates that the US has no trouble what so ever dealing with the trade deficit and could go on like that forever.
And it’s not really good or bad, it’s more good and bad. Having a trade deficit means the US is getting a lot of stuff while paying less than it should. But it also means job losses in the US which increases inequality and political instability. It also means that some technologies will see their next generation being developed in other nations because they get to take US technology, produce it, familiarize themselves with it and innovate on it.
But it’s also a weakness that other nations, like China, can exploit.
It’s a really complicated subject with lots of upsides and downsides.
The point of trade is to exchange things you have but don’t need, for things you need but don’t have.
It doesn’t really matter if you get more back than you traded. It would, if you were a trader, and literally all you did was buy and sell things, but a national economy also produces goods and services, and so long as the production of goods and services outstrips consumption + deficit, the economy will still grow.
You could try reduce the deficit by imposing trade restrictions, but instead of making things better, you’re as likely to eliminate foreign customers, thereby meaning internal productivity drops, and the economy actually gets worse. Oh, and since unwanted financial services cant be used as computer chips, you’ve also got shortages.
Isn’t the trade deficit viewed in vacuum not give a clear enough picture? Doesn’t the local economy matter? If I export 1 dollar of my goods and import 2 of raw materials which I can sell for 1.5 locally, wouldn’t that be a good thing?
Is it bad? Depends on your point of view. The general outcome of constant loss of money from inside to outside is devaluation of the currency, reduction in real value of wages, and loss of purchasing power. Why can’t the average worker buy a house now when 50 years ago a single-earner with 2 kids could? Part of the reason is that the money we make now is worth a lot less, because of things like eternal trade deficit. Not the only factor, but definitely part of the picture.
It is not just that housing costs have risen so fast, but that real wages have stagnated, in part because we lack money coming in from trade to support wage increases. When we buy from there, it means we are not buying from here, and the people involved in making that stuff here lose their good-paying jobs, and take wage cuts if they can even keep the job at all.
The bigger problem isn’t simply because of negative earnings for the country as a whole, but that the losses are primarily from manufacturing of goods. We don’t have the infrastructure (factories) or labor pool to manufacture many goods anymore, so if we had to (like because of war or some major economic catastrophe), we would suffer quite a bit until the problem got fixed. Can’t build and man factories with trained staff overnight; takes time and money.
It is not a bad thing because the US is a debt based economy. On the books, debt counts as money. So, if we default on the debt, it will erase the value of all the money. However, we used that debt to obtain physical goods, so if we do default we still keep the goods since we have the greatest military in the world to defend those goods.
[deleted]
Not particularly bad, it means the USA is getting a higher value of stuff shipped in than shipped out.
The potential downside is that the USA could become too reliant on imports and unable to cope when something disrupts them or you have an issue when too much of your currency is controlled by foreign entities but none of those are necessarily issues, just potential issues.
A trade deficit reduces the value of a currency over time.
But the US is in a really weird place due to the dollar being the currency used for trading oil. Which props up the value a currency the US can freely print. Meaning the US can afford larger trade deficits than other nations could even dream of.
I’ve seen many estimates that the US has no trouble what so ever dealing with the trade deficit and could go on like that forever.
And it’s not really good or bad, it’s more good and bad. Having a trade deficit means the US is getting a lot of stuff while paying less than it should. But it also means job losses in the US which increases inequality and political instability. It also means that some technologies will see their next generation being developed in other nations because they get to take US technology, produce it, familiarize themselves with it and innovate on it.
But it’s also a weakness that other nations, like China, can exploit.
It’s a really complicated subject with lots of upsides and downsides.
Latest Answers