When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!
— Donald J. Trump (@realDonaldTrump) March 2, 2018
As I have stated repeatedly: mathematically, the US is bound to run a trade deficit.
Budget deficits and trade deficits are linked. For discussion of real world math, please see Trump is Clueless About Trade.
For even simpler math, please see Kindergarten Arithmetic 101: Analysis of the Trade Debate.
In regards to steel employment, I present the Foolishness of Trump’s Steel Tariffs in One Image.
However, I am now so sick of this nonsensical debate, I am ready for action.
Let’s get down to business. And if it doesn’t work, double down. Just Do It.
Cease all foreign trade. Tax China and Europe. Halt all car imports.
Dear President Trump, prove you are right or wrong.
Mike “Mish” Shedlock
Let’s Eliminate the Trade Deficit! Yeah, What If?
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Thanks for Tuning In!
Mish
I am WAY worse off. In the 70s I sponged off my parents completely — no job, played with my friends, went to grade school. Now I have two grown children I’m supporting and I have to work full time. That article is SO TRUE!!!!!!!!!!
“they would prefer if, when Government spending gets out of whack, the problems from it hit home immediately, and we learn not to do it.”
Yep. Count me among those who think the Fed should not supply enough credit to enable crazy acceleration in government borrowing. I thought that was the whole point of Fed independence. At least that is what the Federal Reserve *says* their independence is about.
The Fed is indeed an enabler. They have the unenviable task of trying to keep all the balls in the air while the government spends recklessly. On the one hand, if the government didn’t spend recklessly, the Fed wouldn’t need to do much at all. On the other hand, if the Fed didn’t do what they do relatively successfully, the reckless spending would lead to a host of worse problems than we have. That, right there is what I think bothers people about the Fed; they would prefer if, when Government spending gets out of whack, the problems from it hit home immediately, and we learn not to do it.
Yes, no doubt, there are many people and businesses dependent on government. That’s the whole idea. That gets politicians re-elected.
make that “oversimplified”
“It seems bizarre to me, but I see people point the finger at … at the Federal Reserve.”
It does seem that the Federal Reserve has been a major enabler with policies of sustained financial repression and QE. Also, considering that many businesses rely on government spending (for example the medical industry at roughly 20% of the US economy), it seems likely that savings would plummet if government spending were to plummet. Big increases in taxes would also cause savings to plummet. It seems over simplified to state that solving government deficits would necessarily make the other problems go away, just like it seems over simplified to state that unlimited free trade is the best policy in all cases.
Of course it is possible. The formula is (Imports-Exports)=(investments-savings)+(Government spending-taxes). If you eliminate the trade deficit, it simplifies to (Government spending-taxes)=(Savings-investment). Thus, we can eliminate the trade deficit, and still run a government deficit, so long as we save enough to finance it internally. To me, a more logical approach it to balance the government budget, in which case the formula becomes (imports-exports)=(invenstments-savings), in which case, if you have net savings, you have a trade surplus as well.
It seems bizarre to me, but I see people point the finger at the trade deficit, or at the Federal Reserve. The core problem is government deficits. Solve that, and the other problems go away.
Exactly. We can eliminate foreign trade. If that’s a good idea, why not eliminate internal trade as well. We can grow our own food, make our own clothes, do without such things as purchased electricity and gas. We could make sure no foreign countries get the better of us, and no businesses, while we are at it.
Trump tweets helped me realize an ominous fact: I spend my money at the grocery store, but it doesn’t buy anything back from me. In fact, I think I’ve had a trade deficit with grocery stores my entire life! Not fair! Not balanced! I guess this is why my life is so hard.
It is possible to have government deficits and balanced trade, but Mish somehow thinks the economists “identify formula” is a law of nature. It’s not, anymore than “Says Law” holds water. Further, Mish’s hypothesis here is that the only way to balanced trade is to eliminate imports. Again, it’s not. Perhaps it’s Mish who is clueless on this one. Trump pushes a “Trade War” knowing that countries like Germany and China want anything but such a development. Is it just possible that Trump is employing game theory, expecting that positioning himself as an unpredictable player is a key to negotiating favorable outcomes? Oh, wait, I forgot, according to Mish it is mathematically impossible to improve the trade deficit with successful negotiations and prying open presently closed markets. Well, if it’s only math that matters, I suppose trade negotiations are a complete waste of time. With Mish in charge, would we open our markets completely and never, under any circumstances, endeavor to negotiate for access to other countries for U.S. exports? Why bother when, as is argued, access doesn’t matter, only MATH matters. I say bunk.
“By most measures americans are better off then they were a decade ago and the prior decade and so on…”
Spoken like a neoliberal puppet! Even pro-biz publications like Forbes say that 90% of Americans today are worse off than they were in the 1970s.
link to forbes.com
It is certainly true that the US can eliminate the trade deficit. I question whether the bulk of Americans will be happy with the big hit to their standard of living that will accompany it. Furthermore, with the huge hit that it would make to GDP, the welfare system would be unsustainable.
That chart doesn’t disprove anything. By most measures americans are better off then they were a decade ago and the prior decade and so on…
The list of unsustainable things keeps getting longer, or at least those things keep becoming even more unsustainable. Methinks the trade deficit will correct itself, eventually. Probably when the USD loses reserve currency appeal. It is the spectre of that which we are playing with. The impact of that event? Mostly on the US standard of living? It would be GREAT for exports!
“Not true. Our standard of living has been growing for decades.”
That is a lie!
link to en.wikipedia.org
Not true. Our standard of living has been growing for decades.
Japan used to be a net exporter, but not any more. They’ve run deficits off and on for the past few years.
Exactly. But Mish and Wall Street and the establishment Republicans (the Bushes and the Ryans and the McConnells of the world) and Democrats (the Clintons and the Obamas and the Pelosis and the Schumers of the world) think they can convince the victims of globalism that more globalism is the answer. They just don’t realize that their lies have finally caught up with them and are getting desperate.
I can’t be sure but I suspect there have been too many other factors to declare it’s been a disaster. There’s been a transition period from manufacturing to service industries – this makes it difficult to declare it’s been a disaster. We have a larger population that’s employed over 50 years.
If you look into why jobs move over seas as being a disaster then you need to ask yourself why they do that. Inflation & Regulation have been more consistent and may prove to be greater contributors to the problems than more temporary tariffs.
How about this. 50 years of globalism have been a disaster for the American working folk. How about we try something different?
If the trade deficit is linked to the budget deficit how do you explain why Japan is a net exported with a huge budget deficit?
It’s not really a trade deficit as much as cash advance /title loan scam.China loans americans trillions each year so folks can go to Walmart .,target.home depot and spend the checks they get from (china)big gov’t first of the month,take that away and botrh economies collapses literally overnite