Growing trade deficit is selling the nation out from under us (2003) [pdf]

Thats just half the story.

What the US has traditionally done is make these countries then take Dollar loans from the IMF and World Bank to buy American defense and high tech products. When they naturally then default (right now there are more than 50 countries that cant pay back these dollar loans cause where the fuck are they going to get dollars from) their only option is to sell off their natural resources to Wall St/build a US mil base/hand over port etc.

This game has been going on so long (google super imperialism) the US with 5% of the worlds population has accumulated more than 50% of the worlds market cap value.

So the US starts overdosing on leisure/luxury and pace of innovation starts slowing cause they dont even need to be innovative. Try to build a ship in the US and its not possible anymore cause the experience is all gone. There is no great magic solution. When you talk about British history look at the 60s and 70s. There was major turmoil economically and socially post the Ww2 rebuild cause the entire system dependent on colonies had to restructure itself.

The t-shirt metaphor is completely unjust - there is no value there for national security nor strategic autonomy.

Consider instead:

- Semiconductor low-end fabrication (Taiwan, Korea)

- Basic electronics: circuit boards, USB devices, .. (China)

- Auto parts (Mexico, China, Germany)

- Generic drugs (India, China)

The reality is that the US is not the ultimate global hegemon anymore and therefore offshoring industries cannot simply be viewed through an economic lens.

> The only way to balance that is to make things they can afford. Which means low value items.

How about the US pays them well for their work so they can afford all these "high value" items?

Oh no, we economically enslaved all these people to our clothing in sweatshops for pennies an hour, but now they're not buying our...1000$ tablets that don't even have a calculator app...or whatever else the US considers "high value"... Oh how terrible!

> to balance the trade deficit?

Let's talk about the all the software exports that got "converted" into a "service" i.e. SaaS / PaaS / IaaS 1st. Not to mention previously we'd have CD / DVD / etc that are now also "services".

Where's the trade deficit again?

> Britain had a massive trade deficit with India.

Google tells this isn’t true.

The UK actually had a massive trade surplus because it received cheap resources from India, then sold back high value items.

All of this was controlled by strict trade rules.

The US does not have most countries in an economic chokehold - it's laughable even compare the US and its partners to India and Britain. India was forced to buy cheaper machine made cloth by the shipload in a concerted effort to kill off the traditional Indian man-powered textile industry. Meanwhile the EU and the rest of USA's trading partners choose to use American services or buy American products (granted, in Europe, we don't see much American product either). They could have switched away from American goods but chose not to, because of free trade. With tariffs in place, if there aren't severe switching costs, most countries will definitely move away from the US in the short-term, while drawing up plans to move away from US services in the long term.

Your examples of Cambodia and Bangladesh don't really fit in as American colonies. Both countries are already more dependent on China than on the US for imports. Only a fraction of their populations actually use American goods, what maybe an iPhone or some American brands tops.

They do however manufacture final goods for the American market (and the overall worldwide market), so I don't see any losers here except for American consumers. Your average American clothing company isn't going to move away from these countries because they have the full supply chain in place, and your average overseas production facility isn't going to continue producing for an American company at a cheap price if tariffs are in place.

You're on the money with the last point though. The only way to balance it out is to make low value goods, but that was the whole point of outsourcing it to Bangladesh or Cambodia in the first place. Because that was low value production.

> what Britain did was import massive amounts from India and made high value goods at home and provided high value services that couldn't be provided elsewhere

Does this story really describe a trade deficit? Trade is measured in units of currency, not in kilograms.

If I import a quantity of sugar from the West Indies for $1, turn it into rum, and export that rum for $10, then I have, net, produced $9 of exports.

>high value goods at home and provided high value services that couldn't be provided elsewhere.

Eh, they were swiftly outcompeted in almost all fields, but protected that system of mercantilism, by disallowing their colonies to unload anything that was not flagged british. Monopolies work that way, they ruin things and are memorized in the empire center as "good times"..

https://www.investopedia.com/ask/answers/041615/how-did-merc...

PS: This is one of the reasons why the spinwheel is on indias flag- as a sign of clothing production autonomy.

The way he views net investment and net foreign ownership seem wrong.

He uses the analogy of a farm owner selling bits of their farm to fund their trade deficit.

But in the real world, it's not zero sum like this. The pie isn't fixed to the size of the farm. New companies serving new needs can be created.

If you're a poor country wanting to escape poverty, you want FDI to be high because you realize it's not zero sum.

Yeah, foreigners now own 20% of your stock market due to negative net investment, but it's now 1.5x as big so your slice increased in size to 0.8*1.5 > 1 and everyone is happy.

Given this, I struggle to understand if his argument still has merit.

He has a point about national debt but it's not a new one.

It's moments like right now that the white collar class seems forget the wealth inequality in the US that's been widening over the last 50 years.

Yes? If the American consumer can benefit from more competition and has the ability to subscribe to British Netflix (Brit box?) and French HBO, and the existing monopolies had to work a bit harder for subscribers, that could be an improvement.

Quoting from wikipedia:

> Prior to 20th-century monetarist theory, the 19th-century economist and philosopher Frédéric Bastiat expressed the idea that trade deficits actually were a manifestation of profit, rather than a loss. He proposed as an example to suppose that he, a Frenchman, exported French wine and imported British coal, turning a profit.

> He supposed he was in France and sent a cask of wine which was worth 50 francs to England. The customhouse would record an export of 50 francs.

> If in England, the wine sold for 70 francs (or the pound equivalent), which he then used to buy coal, which he imported into France (the customhouse would record an import of 70 francs), and was found to be worth 90 francs in France, he would have made a profit of 40 francs.

> But the customhouse would say that the value of imports exceeded that of exports and was trade deficit of 20 against the ledger of France. This is not true for the current account[, which] would be in surplus.

( https://en.wikipedia.org/wiki/Balance_of_trade#Monetarist_th... )

A major fundamental flaw in the concept is the assumption that goods have a fixed value. In reality, their value changes according to where they are, which is the only reason it's possible to make a profit by moving them around.

Note that in the same example, if the French wine is bought by a wizard instead of a merchant, and he transmutes the wine into 50-francs-of-wine's worth of coal for export to England (the ways of wizards are mysterious), the customs house will record the value of the coal as 90 francs. It's only worth 50 francs when it's going the other way.

And if he does the same thing, transmuting the wine into coal within France, and then sells it in France, the econometric body will be happy that French GDP has increased by 90 francs, making the people of France richer.

That’s not true.

Apple has internal transfer pricing which is dictated by accounting regulations and tax law.

Companies try and set transfer prices to minimize local taxes, but need to follow regulations.

A phone made in China is “purchased” by say Apple Canada for some fraction the price it sells for - regulation usually require the Value to reflect the cost of inputs.

So Apple Canada might purchase a phone from Apple China for $600 CAD then turn around and sell it for $1200 CAD in Canada.

It’s the $600 that counts as a Chinese export to Canada.

iPhone sales don't count as a US export when calculating the trade deficit? Does anyone have information on this? Seems like a major issue indeed.

Unless I got it completely wrong, the beauty of this ambiguity is that one can make two radically different arguments based on it, depending on who we're trying to impress. Do you want to praise the USA? Here. Do you want to tax China? Also here.

This. The problem with looking at trade deficits is that they are comparative trade phallus envy that somehow "demand" regulatory "action" when others don't buy enough of our stuff. How dare them! These deeply-unpopular actions alienating allies certainly won't motivate them to purchase more but than can and will convince them to purchase a lot less. Losing customers abroad who don't want American stuff and losing customers at home who can't buy stuff from elsewhere or stuff from home since prices shot up and they were laid off. Nothing good will come of any of this because the leader is, no doubt, using breaking things for personal gain and to weasel their way into staying in power indefinitely by creating protests and/or war to justify it.

> create products the rest of the world actually wants to bu

Exactly. Esp when you have the leader(s) of the US complaining that Europe doesn't buy US cars. Well in the UK smaller cars dominate the market where in the US larger cars do. On avg US cars are longer, wider, taller, and heavier.

A lot of our roads (Cities and urban areas) were not designed for larger cars, even a Tesla smallest car, the Model 3 feels big on the road, well it feels big on the road to me.

> The simple reality is that the USA consumes more than it produces.

Indeed, and the US can afford this because it has concentrated a lot of the world's wealth within its borders. So it is not really clear what they want to fix.

My main lesson is that in (esp. macro) economics nobody knows what's really going on. Too many, too diverse things happening at breakneck speed.

There's an American monetary economist living in Poland who does a good job of explaining things. "Econ Lessons" on YT.

> Do their economies look healthy?

It's all relative. Relative to what? I think its healthier than it would have been had there been no manufacturing at all.

> Are those manufacturing jobs attractive?

Not all but some are for sure. I'm sure there are enough people working for Volkswagen, BMW or Bosch that earn well and prefer working for them than doing something else.

> Are the Germans and the Japanese richer?

Again, richer than what? I think they're richer than they would have been had they not been manufacturing anything. If you're asking whether they're richer than Americans, no they're not, but that's mostly due to historical reasons (U.S dollar is the world reserve currency).

That wouldn't necessarily be a bad thing if it meant a flattening of inequality however I don't think that is on the cards.

> When they talk about trade deficits do they take into account tourism and other services?

If the USA wants tourists, they better ensure not to annoy tourists by their visa policy, or even by detaining tourists:

> Germany Issues Travel Warning for US

> https://www.newsweek.com/germany-issues-travel-warning-us-20...

Only goods, at least for the EU the 100+B trade deficit for services in favor of the US is carefully left out.

Generally they are just goods.

It’s much easier to measure physical goods crossing customs. It’s very difficult to measure whether that guy in your restaurant was a tourist or not. And that’s the simple case believe it or not…

This is one of the reasons service oriented economies seem to run huge deficits…

I started believing that all these, are just side effects of Americans and their leadership not accepting the loss of their global leadership to China. They know they can’t pull a Plaza Accord like they did with Japan in the 80s to slow they down. Now hoping for some hail marys. In the worst case, a good chunk of people will be poorer, less women with jobs, which should result in a bump in birth rates.

No data points, but I like to entertain this.

If we take out the money of the equation, it really is about what activities constitute good standard of living.

Is it better standard of living to be in a small apartment in the city working an office job or is it better standard of living being in a more rural area working manual jobs. (I honestly don't know, personally, I prefer to do thinking work)

If the answer is the end of - I'll call it - "Consumerism", and the industries we choose to subsidize are those that are more essential to a community driven life (e.g. food, shelter, health, education, transportation, communication, etc ...), I think it is possible to lower the "Standard of Living" as reshaping what the term means, undoing years of advertisement based conditioning.

Americans may no longer have an unnecessarily large or luxurious automobile, or a screen in every room, but I would argue excess becoming the standard is the problem and a major cause of the imbalance.

The solution doesn't feel very democratic or free though, values that have been critical to the identity of the USA.

> Can someone explain to me how the US can reshore manufacturing without dramatically lower their standard of living?

A (very) partial solution is to build the factories at places where the cost of living for the workers is low. This way, the workers can maintain a higher standard of living at a constant salary.

In the future, rich Chinese programmers will discuss the economics of their trade deficit with poor American factory workers :^)