The US has had a trade deficit since 1975, so is the US trade deficit really such a bad thing?
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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?
It’s like having a mortgage. You don’t want one too big, and you do end up spending more because of interest. But a lot of people have accepted its consequences of having a mortgage.
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.
It’s like having a mortgage. You don’t want one too big, and you do end up spending more because of interest. But a lot of people have accepted its consequences of having a mortgage.
Short answer: no.
International economics are insanely complicated, so longer answer would be that it could be a problem if things changed. As it stands right now it’s not a big deal.
It basically means we’re spending more than we’re making for trade, but it’s not like we aren’t getting stuff. I have a personal 100% trade deficit with my local grocery store. I only ever give them money but I get food in exchange.
Our economy is service based and consumption fed so it makes sense we import more than export. Consumption represents 70% of the GDP
You cannot be a reserve currency without running a massive federal deficit, so in order to maintain world currency status, deficits are structurally required.
TLDR: it’s lunchtime and you really want snakpacks. But it is not just you, it’s fucking everyone. But that kid over there, billy, his mom gives that fucking kid like 12 snakpacks a day. So you trade your carrots to Jenny, who promises to trade her oatmeal cookies to Katy, who billy has a crush on to get the snakpaks.
So at the end of the day billy has like zero fucking snakpacks, Jenny has your carrots and katy has an oatmeal cookie and you have like 1/2 a snakpack but Jenny owes you the other half tomorrow. Everyone traded in snakpacks but used other items, but the price was in snakpacks because everyone agreed that is what is the best. Billy has all the other stuff except the snakpacks, the system breaks down if he just hordes them, because money is debt.
Several years ago, The Economist added all countries reported deficits and surpluses. The result was an overall earth deficit roughly equal to that reported by the USA.
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