The Myth of Trade Deficits

I have a trade deficit with J.C. Penney. That’s right. Month after month, I buy more from J.C. Penney than J.C. Penney buys from me.
In fact, J.C. Penney has never yet bought anything at all from me. It’s been a one-way street right from the day I got my credit card in the mail. And I don’t expect that this is going to change any time soon because the retail chain shows no interest in buying my chief export, which is columns like this one. It just doesn’t seem fair.
Every month, the U.S. Commerce Department releases the official “balance of trade” figures showing the difference between the value of merchandise that enters the country and the value of merchandise that leaves the country. If imports exceed exports, America has a trade deficit, which sets off alarm bells in Washington. If exports are greater than imports, we’re all supposed to celebrate because that’s a trade surplus.

By this logic, draining the country of all goods and accepting none from abroad would be the best possible trade news. We wouldn’t be able to celebrate, however, because we’d all starve. But at least the government’s books would register one heck of a trade surplus.
>this is the logic of Donald trump

Other urls found in this thread:

amazon.com/Americas-Protectionist-Takeoff-1815-1914-Michael/dp/3980846687
foreignaffairs.com/articles/united-states/can-chinas-companies-conquer-world
twitter.com/SFWRedditImages

Did you eat paint chips as a child?

dat ass

Holy fucking shit you fucking homo

it's all the gmos and grain-fed beef getting to him

>shopping at J.C Penny

Sup Forums pls respond this also confuses me

...

More likely fetal alcohol syndrome.

Who is this skeet treat?

>confuses countries with people

into the trash

amazon.com/Americas-Protectionist-Takeoff-1815-1914-Michael/dp/3980846687

The modernization of the Republic of Korea.
/thread

>ITT we pretend it's 2007 before the crash
Trade deficits don't matter guys!

When you shop at jcpenny your money is being spent by their company on labor and inventory. Any profits are distributed to the owners. Generally that money becomes income for other Americans, the laborers and owners, who then spend it again at other stores. It becomes income for the Americans who sell those goods and services too. The cycle continues until your money has been spent many times over, and is income for many Americans. This is called the money multiplier process. It depends on individuals propensity to save, but currently is around 10x.

When you import goods that money immediately leaves our country. It's not income for any Americans, instead the multiplier process occurs abroad. Not good.

Please study basic economics.

It's almost as if people will believe anything written with enough smug self-assurance..

None of what you're saying matters in the slightest. That is not what this is about. It is not about the trade deficit, but about the economic condition and philosophy of the nations in question.

The goal of harping on about trade deficits is not to create a trade surplus, but to build a reason to open markets in that country. This is what Great Britain did in India and China in its heyday. Even though they were doing just fine on trade, they see local merchants and even small-time foreign merchants successfully doing business where they do business as threatening their influence. They use imbalanced trade deficits (which are meant to be imbalanced based on economic conditions) as a reason to forcibly open the markets and eliminate the competition.

So, basically, the goal of nationalistic trade is not to cure trade imbalance, but to secure foreign markets for our merchants and not theirs. Trade imbalance is only the reason cited to do so.

>trade imbalance with Mexico
>issue horribly imbalanced ultimatum that they cannot meet because trade imbalances are make believe
>invade mexico "to save the people from a tyrannical government that has loose cannon policies in regards to trade"
>destroy much of the means of local production
>rebuild the factories in the US and employ Americans there
>sell goods to Mexicans

This is a foreign policy disguised as an economic policy.

i know a guy who built an entire presidential campaign off smug self-assurance..

FUCK OFF MERCHANT SHILL. Don't bring in any reason that's heresy against the divine edicts of our GOD EMPEROR. There'll be no counterargument here. We're Alt-Right™, a very legitimate political movement, so don't contradict us. Remember that Trump is always right so don't try anything akin to a stump.

Is that supposed to be a counterpoint? How is anything I posted wrong?

Who the fuck is more prosperous in your analogy? You, the wagecuck, who earns $50k/year or the CEO of JC Penney who makes millions a year?

If you had ongoing trade deficit with everyone we would eventually call you a bankrupt.

>By this logic, draining the country of all goods and accepting none from abroad would be the best possible trade news.
Its not about quantity its about value.
Go read up on the subject and come back when you know what you're talking about.

(You)

I am genuinely curious about this issue as well.

These are the reasons in support of balancing our trade deficit with other countries:

>Bring and keep more $$$ in circulation within our system (helping Paco or Wang Chung live a higher quality life takes away from our own).

>De-incentivize the job transplantation and outsourcing that are gutting the job supply from our country.

>Its not about quantity its about value.
Probably why balance of trade is measured in dollars huh you fucking retard

>money immediately leaves our country.
you act like those dollars never come back and are never spent.

I understand that our comparative advantage lies in high-skilled high-tech manufacturing, financial services, and intellectual property. But that doesn't mean trade deficits are a myth, especially given that we're financing it with debt. It's simply not sustainable.

I'm all for letting poor people do the low skilled manufacturing and I want us to consume their natural resources. I like what boeing does. They outsource the low skilled labor then import those cheap goods which they assemble into extremely valuable planes. However the net affect for our whole economy has to be that we're adding more value than we're consuming. That's not the case right now and we're financing it with debt.

>I have a trade deficit with J.C. Penney.
If you have a trade deficit with the whole world, as the US does, you will slowly but surely become poorer.

>If imports exceed exports, America has a trade deficit, which sets off alarm bells in Washington.

The question is--what is the trade deficit for?

If the deficit is because of buying other stores of wealth (gold bullion), there is nothing wrong with it--trading one asset for another.

If the trade deficit is to purchase industrial equipment to set up a factory--great--another real asset.

If the trade deficit is for an endless stream of consumables like clothing, food, electronics etc, the country will in time run out of countries willing to hold those dollars, leading to a currency crisis.

You realize "goods" aren't a finite thing, right? We produce goods. We grow crops. We manufacture things. We take raw materials and package them into usable/transportable forms. Basically, you're a fucking moron.

JC Penney IS buying from you.
Every time you buy from them, they are buying money from you.

Why are there so many retarded people on Sup Forums
I should start saving this posts

I'm not saying this condescendingly because we're far worse, but the US has a generalized trade deficit.

What you're talking about is a trade deficit with one entity, which is a fraction of the whole trade deficit. If you had a trade deficit with JC Penney and no trade surplus from a different entity, you WOULD be in trouble.

If America had a deficit with China but a surplus with every other country it wouldn't even be that bad.

>if exports exceed imports that means ALL the things have been exported
>we didnt even think to keep some food for ourselves

Properly retarded.

Even if you're not a troll, which I think you are, it's really depressing that there are people who think like you, who don't even understand something as basic as trade deficits, who are able to vote and decide the future of their countries.

Much of it doesn't come back. That is why there is a trade deficit you wit.

Did you get this from S4P?

This nigger from Argentina would know.

>not realizing outsourcing has been an unmitigated disaster at Boeing
>not knowing business schools use Boeings 787 program as a case study of what not to do when it comes to outsourcing
Keep talking out of your ass kid

t. former Boeing engineer

What a nice looking lady

>We wouldn’t be able to celebrate, however, because we’d all starve.
we make our own food I hope you realize dumb nigger.

you need to set up some tarrifs, dumb ass. Buying things is fine, but only if you're smart.Steal it next time

it's still a trade deficit. answer the question einstein.

>money multiplier
hahahahahaha

the problem is the us can never compete with china and mexico for low wage labour

it has nothing to do with protection

Trade deficits are not, in and of themselves, a bad thing. Currency exchange brings it all back into equilibrium. The problem comes in when an extreme trade deficit is met by exportation of unskilled work when we have an abundance of unskilled labor, and financed by consumer and sovereign debt.
Economist reporting in. AMA I suppose.

>largest aerospace & defense manufacturing company in the world is a disaster
>I'm an engineer, I know a lot about business school

If every component of a Boeing plane was built in America then they wouldn't sell a single one. It'd be too damn expensive.

Our advantage is in high skill, high tech manufacturing. Seat cushions, wires and plastic components can be made by peasants in the 3rd world for a fraction of the price. We use well educated (expensive) and state of the art (expensive) capital to turn those cheap goods into some of the most expensive machines in the world.

For us to spend our time and resources turning raw materials into basic components would not be pursing our comparative advantage.

checked.

Why are the ones Trump talks about bad?

Trump is a running a protectionist style platform that was more common when he was younger (last century). Pre-NAFTA union politics, that kind of thing. His criticism of permanent normal trade relations with China, where he actually has a defined position at least, is focused on the impact on the labor market. It isnt about balance of trade, it is about a mismatch in the US labor market between what our workforce is capable of doing (with necessary implications about social mobility) and where we acquire the goods that workforce could be producing.

Thats why he says things like, "China is taking our jobs".

The problem isnt trade policy, the problem is labor policy. Unfortunately, trade policy is much easier to change than labor policy is, because people are harder to change than legislature.

When you say labor policy what exactly do you mean? How would Trump or yourself go about trading it for the benefit of the US?

changing it*

china has a billion people and therefore low wage labour in abundance

the us doesn't

the us couldn't compete in manufacturing low skill products even if the us didn't have a 10million page regulation handbook for labour and employer relations

What qualifies you as an economist, Phd?

CFA here btw.

By labor policy, I mean that the issue is that people who would be working in semi-skilled or unskilled labor (say, manufacturing) are not because we import the product of semi and unskilled labor from abroad. That leaves semi and unskilled workers with few options.

It is not entirely clear what Trump hopes to do about the problem. That is part of why policy wonks (including me) are skeptical of his platform, because it is all bitching and little problem solving. Tariffs are highly unlikely to fix the issue, we are too far down this road. That is why liberals talk so much about education, because for them it is the solution. I am skeptical of that route as well, however.

As for what I would do, I agree that education is part of the problem, and so is trade. Capital automation is the problem that really underlies it, though. We are beginning to reach the point here that economists, futurists, and philosophers have been speculating about for some time: our progress is creating poverty. We need to start getting serious about exploring policy options like basic incomes and how to avoid the deleterious effects of those policies on things like worker motivation, moral fiber, etc.

Working on the PhD still, got a couple years left. If somebody with a doctorate in econ pops up, I will happily cede the floor. Im about to go hop in the shower with the wife anyways.

end the welfare state. cull the herd. it is the only solution.

also end minimum wage. people could be janitors and shit. we definitely need a lot of low skill work on basic maintenance and infrastructure.

Aren't his main focuses with china their currency manipulation and tariffs?

God I want to fuck her

"Culling the herd" would not solve the issue, it would just shrink the size of the economic pie because less would be producing and consuming. More practically speaking, it also means that you will end up with your guts in your hands because you thought you could run around killing people you decided were less educated and found out that it doesnt take a whole lot of wits to knife an idiot from a message board.
I suppose in some sense, that may be an efficient outcome though, since that could represent the culling you are hoping for.

Removing minimum wage would, in the short-medium run (depending on how sticky wages were), likely absorb some of the problem by putting our unskilled labor into closer competition. In the long run though, it wouldnt change anything, and could even potential cause issues via social unrest. It would also remove one of the incentives for capital innovation and labor automation, which could be seen as compromising our technological edge.

Im not sure what you mean by "ending the welfare state", but Im pretty sure it isnt rooted in any actual theory of policy, just in resentment of brown people. Im going to guess you're on welfare yourself, it seems like folks like that always are. Weird world.

Yeah. He points to Chinese currency manipulation as a source of their export advantage, which is certainly a thing but not the whole story. Tariffs are the solution he has publicly flirted with.

Alright, Im off. Shower time.

Why do I get the feeling that this horrendous false equivalency display of liberal mental gymnastics would get tons of likes if made into an image and posted onto facebook

So what is the solution? How do we beat a country who we can't compete with on that level?

>it would just shrink the size of the economic pie because less would be producing and consuming.
no it wouldn't. low skilled people are a majority of the population but only a .01% of productivity. if you stop feeding them they will stop reproducing. You're fucking retarded.

personally i don't really care. doesn't seem like a bad thing if people in china want to make cheap electronics. all the best shit is still made in the west. China even has to run their governemnt systems on software from other countries and consider it a security risk.

if you can figure out how to get behind the pay wall this article explains everything

foreignaffairs.com/articles/united-states/can-chinas-companies-conquer-world

C'mon man. Don't diss the JCP. Did you hear they sell appliances now?

>Please study basic economics.

Shut the fuck up

Trades do not tend to happen unless both parties mutually benefit, they both get richer. The value of the paper leaving the country is replaced by the value of the goods and services coming in. This is the same as if you are trading with your neighbor, trading with your department store, or trading with some chinese faggot. There's no such thing as a trade deficit or surplus when you compare value, there's only a deficit/surplus when you measure dollars. Arbitrary because they are a traded commodity like any other.

No serious economists advocate protectionism and condemn free trade, except in particular cases. Hint: not two typical developed countries trading with one another.

Did you copy and paste this off of a Reason article?

Doesn't Trump condemn free trade and want to impose higher tariffs to discourage it?

trump's trade policy is indeed stupid, but I don't think his ideas will be implemented

>Much of it doesn't come back. That is why there is a trade deficit you wit.
When it does come back its in the form of nouvaeu riche Chinese raising property values so blue collar American workers can't afford.

He's vague about free trade. He says he likes it but we are getting screwed without articulating how or what is wrong with the TPP.

He has suggested tariffs, but that would just hurt all of us.

The real problems are

1) Why is american labor uncompetitive with foreign labor? Because employee benefits are expensive as fuck
2) Why are firms leaving the US to go operate in foreign countries? Because regulations are expensive as fuck

What worries me is instead of addressing why businesses are taking their ball to other countries, he just says he's going to force them to keep manufacturing in the US . *somehow*.

Do we really need limitless economic expansion at all costs. Take down any barrier to the markets?

The question you should be asking yourself is, why should China have free access to your market.

People chant "free market" over and over again so many times that they forget markets aren't free.

You need a bunch of stuff already to have a market worth selling products in.

#1: a founding stock of people that are intelligent. A bunch of Zimbabwean dumbasses won't do - they have to be productive enough to have amassed the money necessary to buy your product.

#2: stability of laws - you can't sell your products in a wild west type of environment where no one honors contracts - law and order are a must.

Once you have #1 & #2, you are already capable of producing the goods you need, and the advantages of self-sufficiency are such that you need a pretty good reason to allow access to your market, because it cost you a tremendous amount of money and time to create this valuable market.

So why should we allow China, the world's No.1 economy, access to our market for free? Did they build our market? No. Do they pay taxes to maintain the infrastructure or law enforcement? No.

Truth is, there are no good reasons to allow anyone free access to your market. It's like you built a Disneyland, but some Jew merchant insists you have to let everyone in for free, because reasons.

In the real world, if you build a market or a disneyland, you have to charge admission, or you will soon be out of business.

It's time for tariffs. It is, you goddamn shills know it, too, which is why you are running around like chickens with your heads cut off screaming "Free! Free! Free! Free! Free Market!" over and over again, to obscure the issue.