Are trade imbalances inherently bad?

[Formerly Rockymtnole]

This is what I don’t get. It seems to me trade should be a country by country analysis. Are countries levying high tariffs on US goods? Which goods? Are they impeding access to US goods or engaging in other shenanigans?

Otherwise, why is it inherently a bad thing if there’s a trade deficit with a particular country?

Can someone explain this to me?

 

[BioHawk]

Especially when you add the services we provide, which is where the US has a massive surplus. The Trump administration did NOT include services when calculating their deficit numbers.

 

[Chishawk1425]

This is what I don’t get. It seems to me trade should be a country by country analysis. Are countries levying high tariffs on US goods? Which goods? Are they impeding access to US goods or engaging in other shenanigans?

Otherwise, why is it inherently a bad thing if there’s a trade deficit with a particular country?

Can someone explain this to me?

 

[General Tso]

This is what I don’t get. It seems to me trade should be a country by country analysis. Are countries levying high tariffs on US goods? Which goods? Are they impeding access to US goods or engaging in other shenanigans?

Otherwise, why is it inherently a bad thing if there’s a trade deficit with a particular country?

Can someone explain this to me?

It is if you're a 5 year old crying on the playground, but not if you're the leader of the free world

 

[Jerome Silberman]

I've been asking this question for 10 years.

 

[Colonoscopy]

This is what I don’t get. It seems to me trade should be a country by country analysis. Are countries levying high tariffs on US goods? Which goods? Are they impeding access to US goods or engaging in other shenanigans?

Otherwise, why is it inherently a bad thing if there’s a trade deficit with a particular country?

Can someone explain this to me?

I don't spend much time thinking about this sort of thing, but that's always been my understanding.

To me it would seem to be about economic capacity and need.

My assumption is that we simply can't produce everything we need.

If it's good work, we can produce it, and the cost isn't outrageous, try to do it here.

But it would seem lots of these jobs are A) jobs we wouldn't want/do in America, and B) the goods are lot cheaper.

So who cares about trade balance in that scenario? Win win for us.

I suppose you could try to strong-arm the other country into giving you concessions because they rely on you... but that's questionable strategy, and you're already gaining value.

 

[mnole03]

Especially when you add the services we provide, which is where the US has a massive surplus. The Trump administration did NOT include services when calculating their deficit numbers.

The import-export numbers do include exported services, but they don’t include repatriated income for multi-nationals that pay for domestic services.

Apple builds phones in China and sells them in Europe, Asia, Canada, Australia, South America, etc. and brings the income back to the United States. They then spend it on corporate administration, R&D, marketing, legal, accounting, taxes, insurance, investing, and shareholder distribution.

 

[seminole97]

This is what I don’t get. It seems to me trade should be a country by country analysis. Are countries levying high tariffs on US goods? Which goods? Are they impeding access to US goods or engaging in other shenanigans?

Otherwise, why is it inherently a bad thing if there’s a trade deficit with a particular country?

Can someone explain this to me?

In a Ricardian analysis trade deficits don't really matter. Because when Ricardo was figuring this stuff out trade was settled in precious metals, not fiat currency.

America could buy cars from Japan, Japan could use the dollars to buy sheep from Australia, and Australia could use the dollars to buy Disney+ subscriptions and invest in NVDA. Trade would look imbalanced between any two parties, but the whole still works out on net.

What screws with that analysis is that U.S. politicians can just create dollars at no cost to buy foreign goods. Now they've traded us goods in exchange for a debt instrument on the backs of American taxpayers. You can't do that forever, it's unsustainable.

The market has feedback mechanisms to ultimately halt unsustainable behavior. The 'political market', not so much. It can get pretty crazy if the politicians aren't reined in.

 

[hawkeyetraveler]

No. Trade imbalances can actually be good depending on circumstances.

To dumb it down, let’s use a very simple example with two very different products: bananas and Amazon AWS.

Let’s say our country is great at technology and AWS is a major service provider supporting a huge percentage of the tech world - websites, AI, apps, and much much more. The types of companies/consumers that use those services are disproportionately in modern western nations. You don’t find a huge demand for AWS is places like Central America - they simply cannot afford the technology because their economy is much poorer and they lack the tech industry we enjoy.

But they are able to grow and export bananas more cheaply than we can here. That is one part climate (better for bananas) and one part labor costs (much lower than the US).

Now we are a very wealthy nation and we use a shit ton of AWS. But we also love bananas. So our wealthy citizens can have BOTH amazing technology built on AWS and eat our fill of bananas. THIS IS NOT BAD. Sure we didn’t sell much to them, but so what? We got cheap bananas.

The idea that we should put a tariff on them because they don’t buy AWS as much as we buy bananas is ridiculous. It ignores the dynamic of us being wealthier, of us being unable to produce bananas economically and that they just can’t use the things we produce efficiently. This is the heart of comparative advantage.

In this example a tariff punishes BOTH the US consumer and the banana producer simply because they cannot afford/don’t need the things we are good at exporting. It is the dumbest possible reaction to our love of bananas. Because post tariff bananas cost more and the banana producing countries still are not using AWS.

I know this is an overly simplistic example, but it is representative of the dynamic playing out across virtually every product and industry in real time right now. If we produce mostly services and tech we are likely to have deficits with countries that produce mostly physical goods. Especially when we have a much larger domestic economy and much higher per capita income to spend on things.

 

[Colonoscopy]

If I were Trump I'd

A) Shoot myself.
B) (If I lived) Look at the composition of jobs and production in the US.
C) Figure out what items essential to our national interest should be produced here.
D) Figure out what we might be able to do here that we aren't that would represent good jobs for Americans. Yes, may result in higher cost for consumers, but, if it's a boon for middle/working class people, probably should do it.
E) Figure out how to make that happen. (Tariffs are only one strategic tool)

 

[Formerly Rockymtnole]

No. Trade imbalances can actually be good depending on circumstances.

To dumb it down, let’s use a very simple example with two very different products: bananas and Amazon AWS.

Let’s say our country is great at technology and AWS is a major service provider supporting a huge percentage of the tech world - websites, AI, apps, and much much more. The types of companies/consumers that use those services are disproportionately in modern western nations. You don’t find a huge demand for AWS is places like Central America - they simply cannot afford the technology because their economy is much poorer and they lack the tech industry we enjoy.

But they are able to grow and export bananas more cheaply than we can here. That is one part climate (better for bananas) and one part labor costs (much lower than the US).

Now we are a very wealthy nation and we use a shit ton of AWS. But we also love bananas. So our wealthy citizens can have BOTH amazing technology built on AWS and eat our fill of bananas. THIS IS NOT BAD. Sure we didn’t sell much to them, but so what? We got cheap bananas.

The idea that we should put a tariff on the, because they don’t buy AWS as much as we buy bananas is ridiculous, it ignores the dynamic of us being wealthier, of us being unable to produce bananas economically and that they just can’t use the things we produce efficiently. This is the heart of comparative advantage.

In this example a tariff punishes BOTH the US consumer and the banana producer simply because they cannot afford/don’t need the things we are good at exporting. It is the dumbest possible reaction to our love of bananas. Because post tariff bananas cost more and they the banana producing countries still are not using AWS.

This is my thinking, especially when countries offer to go to zero tariffs and the administration rejects it out of hand, saying we’d still have a trade imbalance.

 

[jonesy5960]

View embedded media

This is why I'm protesting outside of Chili's today. It's totally unfair. Who's with me HBOT??

 

[RagnarLothbrok]

In a Ricardian analysis trade deficits don't really matter. Because when Ricardo was figuring this stuff out trade was settled in precious metals, not fiat currency.

America could buy cars from Japan, Japan could use the dollars to buy sheep from Australia, and Australia could use the dollars to buy Disney+ subscriptions and invest in NVDA. Trade would look imbalanced between any two parties, but the whole still works out on net.

What screws with that analysis is that U.S. politicians can just create dollars at no cost to buy foreign goods. Now they've traded us goods in exchange for a debt instrument on the backs of American taxpayers. You can't do that forever, it's unsustainable.

The market has feedback mechanisms to ultimately halt unsustainable behavior. The 'political market', not so much. It can get pretty crazy if the politicians aren't reined in.

This is a fantastic analysis.

Not bad for a Russian bot, 😉

 

[thewop]

This is what I don’t get. It seems to me trade should be a country by country analysis. Are countries levying high tariffs on US goods? Which goods? Are they impeding access to US goods or engaging in other shenanigans?

Otherwise, why is it inherently a bad thing if there’s a trade deficit with a particular country?

Can someone explain this to me?

I agree, I don't think it is. We'll obviously buy more from Denmark than they buy from us...

Per capita???? I don't even think then it's necessarily bad.

I can see where in some cases the barriers to entry prevent our products from competing and therefore contribute to the trade deficit. In those scenarios I think it's OK to fight back, and a tariff/threat of is probably the quickest way to do it.

 

[Formerly Rockymtnole]

I agree, I don't think it is. We'll obviously buy more from Denmark than they buy from us...

Per capita???? I don't even think then it's necessarily bad.

I can see where in some cases the barriers to entry prevent our products from competing and therefore contribute to the trade deficit. In those scenarios I think it's OK to fight back, and a tariff/threat of is probably the quickest way to do it.

Don’t disagree - a disciplined, targeted, measured approach to these selected countries makes complete sense. Instead, we get this.

 

[mnole03]

This is my thinking, especially when countries offer to go to zero tariffs and the administration rejects it out of hand, saying we’d still have a trade imbalance.

The Vietnam thing is bananas. We shouldn’t need or want to make shoes and textiles in this country. They’re low paying terrible jobs with huge environmental consequences.

 

[Sharky1203]

I feel they are. If tariffs were so bad at generating income, why did so many other countries impose them on us?

 

[Nole Lou]

Of course not. There may be strategic and national security imperatives to protect certain industries, but it's always at a cost. Best way I've seen it described today.

 

[seminole97]

The Vietnam thing is bananas. We shouldn’t need or want to make shoes and textiles in this country. They’re low paying terrible jobs with huge environmental consequences.

Luddites never should have allowed the mechanical looms in the first place, now look at us, we hardly know what a sweatshop smells like.

 

[RagnarLothbrok]

No. Trade imbalances can actually be good depending on circumstances.

To dumb it down, let’s use a very simple example with two very different products: bananas and Amazon AWS.

Let’s say our country is great at technology and AWS is a major service provider supporting a huge percentage of the tech world - websites, AI, apps, and much much more. The types of companies/consumers that use those services are disproportionately in modern western nations. You don’t find a huge demand for AWS is places like Central America - they simply cannot afford the technology because their economy is much poorer and they lack the tech industry we enjoy.

But they are able to grow and export bananas more cheaply than we can here. That is one part climate (better for bananas) and one part labor costs (much lower than the US).

Now we are a very wealthy nation and we use a shit ton of AWS. But we also love bananas. So our wealthy citizens can have BOTH amazing technology built on AWS and eat our fill of bananas. THIS IS NOT BAD. Sure we didn’t sell much to them, but so what? We got cheap bananas.

The idea that we should put a tariff on them because they don’t buy AWS as much as we buy bananas is ridiculous. It ignores the dynamic of us being wealthier, of us being unable to produce bananas economically and that they just can’t use the things we produce efficiently. This is the heart of comparative advantage.

In this example a tariff punishes BOTH the US consumer and the banana producer simply because they cannot afford/don’t need the things we are good at exporting. It is the dumbest possible reaction to our love of bananas. Because post tariff bananas cost more and the banana producing countries still are not using AWS.

I know this is an overly simplistic example, but it is representative of the dynamic playing out across virtually every product and industry in real time right now. If we produce mostly services and tech we are likely to have deficits with countries that produce mostly physical goods. Especially when we have a much larger domestic economy and much higher per capita income to spend on things.

This is a fantastic post and a great “simplification” of the entire point of global trade—specialization.

What our friends, like Buddy @Scruddy, don’t seem to get is that playing hardball with (i.e.) Central American countries isn’t exactly going to yield a huge net gain for us as it relates to the bulk of America’s actual trade deficits.

As always, well done, traveler! 🧳

 

[hawkeyetraveler]

I agree, I don't think it is. We'll obviously buy more from Denmark than they buy from us...

Per capita???? I don't even think then it's necessarily bad.

I can see where in some cases the barriers to entry prevent our products from competing and therefore contribute to the trade deficit. In those scenarios I think it's OK to fight back, and a tariff/threat of is probably the quickest way to do it.

I tend to agree although I think tariffs should be the method of last resort when dealing with a sticky trade issue. In highly select, rare circumstances they can make sense.

But is far better to figure out how to help American business become more efficient so they can compete effectively in global markets than to erect a trade barrier like a tariff. The tariff masks inefficiency and doesn’t provide the market incentive to become competitive. If used broadly over a sustained period of time they totally backfire.

 

[Formerly Rockymtnole]

The Vietnam thing is bananas. We shouldn’t need or want to make shoes and textiles in this country. They’re low paying terrible jobs with huge environmental consequences.

They’re claiming Vietnam is funneling Chinese goods through and other misdeeds.
But, fine, go after Vietnam. Taking a hardline against Vietnam wouldn’t tank the global economy.

It’s the heavy handed approach that’s causing all the turmoil.

 

[RagnarLothbrok]

Of course not. There may be strategic and national security imperatives to protect certain industries, but it's always at a cost. Best way I've seen it described today.

View embedded media

Not true for teachers! 😊

We are way more productive than that and are magicians at doing more with less.

@Tom Paris , for those capable of reading this, they should thank a teacher.

 

[Colonoscopy]

I feel they are. If tariffs were so bad at generating income, why did so many other countries impose them on us?

My assumption here is that a lot of these countries had them on specific industry so as to protect their industry. (For example, Germany on auto imports because they're a big producer of autos)

I'm not against us using them selectively.

 

[seminole97]

Of course not. There may be strategic and national security imperatives to protect certain industries, but it's always at a cost. Best way I've seen it described today.

The average American goes to work for 8 hours during which they do about an hour of actual work) at a low exertion low risk job, and in return they consume probably 25 man hours of global labor product daily. We are now being told that somehow this amounts to the rest of the world getting over on us, though we’ve had virtually nothing to offer to them in return other than green paper which we print indiscriminately out of thin air. Imagine for a moment that we had an entirely closed economy. Absolutely everything produced in the United States and consumed in the United States. At that point the average American is not going to be able to consume more than the average American’s work product daily. I don’t think people understand the standard of living reduction that would require.

That bold part is important, because it's unsustainable.

Society can't make up for lack of productivity with a printing press, but politicians can make hay, for a while...

 

[West Dundee Hawkeye]

Trade has winners and losers.

The workers who live in Flint, Detroit, Waterloo, the Quad Cities have been hurt.

The consumers benfit from the low priced goods from China, Mexico, Vietnam, etc.

Problem is entire American industries have been outsourced and the country is at risk. Especially since the country that now produces the product is our foe and not our friend.

 

[bdcolt45er]

Trade has winners and losers.

The workers who live in Flint, Detroit, Waterloo, the Quad Cities have been hurt.

The consumers benfit from the low priced goods from China, Mexico, Vietnam, etc.

Problem is entire American industries have been outsourced and the country is at risk. Especially since the country that now produces the product is our foe and not our friend.

We don't have friends anymore.

 

[Scruddy]

This is a fantastic post and a great “simplification” of the entire point of global trade—specialization.

What our friends, like Buddy @Scruddy, don’t seem to get is that playing hardball with (i.e.) Central American countries isn’t exactly going to yield a huge net gain for us as it relates to the bulk of America’s actual trade deficits.

As always, well done, traveler! 🧳

Massive cope

 

[Titanhawk2]

This is what I don’t get. It seems to me trade should be a country by country analysis. Are countries levying high tariffs on US goods? Which goods? Are they impeding access to US goods or engaging in other shenanigans?

Otherwise, why is it inherently a bad thing if there’s a trade deficit with a particular country?

Can someone explain this to me?

If they are made that way by tariffs and limits on imports by one side, then not good

 

[mnole03]

My assumption here is that a lot of these countries had them on specific industry so as to protect their industry. (For example, Germany on auto imports because they're a big producer of autos)

I'm not against us using them selectively.

The auto import one would go away if we got rid of the chicken tax.

 

[hawkeyetraveler]

Massive cope

Scruddy I’m curious what type of profession you are in that gives you such confidence in Trump’s economic policies? I believe you are a wrestling coach but wasn’t sure what you do full time. You in business? Farm? Teacher? I know you got a Harvard certificate at one point.

The reason I ask is I spent 30 years in international business dealing with the impacts of economic policy. I’ve been to China more times than I can remember, I’ve done deals all over the world. On top of real world experience I studied this topic in undergrad and at grad school (Kellogg). I’m not trying to flex here, but I actually know quite a bit about this topic and from my vantage point this is one of the biggest blunders in economic history.

So what background do you have that makes you so confident in team Trump?

 

[Scruddy]

Scruddy I’m curious what type of profession you are in that gives you such confidence in Trump’s economic policies? I believe you are a wrestling coach but wasn’t sure what you do full time. You in business? Farm? Teacher? I know you got a Harvard certificate at one point.

The reason I ask is I spent 30 years in international business dealing with the impacts of economic policy. I’ve been to China more times than I can remember, I’ve done deals all over the world. On top of real world experience I studied this topic in undergrad and at grad school (Kellogg). I’m not trying to flex here, but I actually know quite a bit about this topic and from my vantage point this is one of the biggest blunders in economic history.

So what background do you have that makes you so confident in team Trump?

You have less experience in international business than Donald trump. Based on your credentialst view point, why would I trust your thoughts over his?

 

[Rifler]

Assuming a country has the wealth to import what they need, honest trade imbalances are not inherently bad, as most countries export what they do well and import what they do poorly,.. Problems arise when outside influences are imposed on what would normally be an open transaction,.. Things like tariffs, trade restrictions, and value added taxes change the equation...

 

[RagnarLothbrok]

Massive cope

 

[Joes Place]

This is what I don’t get. It seems to me trade should be a country by country analysis.

Well...you're just stupid, I guess. 😉

US imports nearly 100% of its coffee.
We just need to increase tariffs to high enough rates to encourage more farmers to grow coffee here, yo...

 

[Hammerhead02]

This is my thinking, especially when countries offer to go to zero tariffs and the administration rejects it out of hand, saying we’d still have a trade imbalance.

Vatican City is a good example. It has a small population with a relative small need to import many items from the USA. However, the USA has a large Catholic population and imports an amount of religious related items that is portionate. It's illogical to think the 2 countries should have balanced trade.

 

[thewop]

Don’t disagree - a disciplined, targeted, measured approach to these selected countries makes complete sense. Instead, we get this.

Yeah it feels a bit like firing birdshot into the wind hoping a couple of them hit the mark.

A clear explanation that quells uncertainty for investors would be preferred... At the same time I'm staying out of the market in the short term and am taking a wait and see approach.

 

[sober_teacher]

Especially when you add the services we provide, which is where the US has a massive surplus. The Trump administration did NOT include services when calculating their deficit numbers.

Everything I’ve read says they chose maybe the most ass-backwards way to calculate “reciprocal tariffs” as possible.

I feel they are. If tariffs were so bad at generating income, why did so many other countries impose them on us?

Well, the purpose of tariffs isn’t to generate income, as someone else said the main idea is to protect certain industries.

Targeted tariffs are fine, these were anything but.

 

[hawkeyetraveler]

You have less experience in international business than Donald trump. Based on your credentialst view point, why would I trust your thoughts over his?

• Wasn’t handed $400 million from daddy to start my career - I grew up a farm kid in Iowa
• Got my education by studying hard, daddy don’t buy my way into school
• I’m not old as dirt, my brain still works - not sure Trump’s ever did, but it sure as shit does not now
• I have never bankrupted a company, let alone as many as Trump…what kind of shit-for-brains bankrupts a casino
• I have never been convicted of any crime, nor have I ever lost a lawsuit
• I am not barred from philanthropy due to fraud.
• I led an organization that had more revenue, more employees and higher profitability than the Trump organization

That took me about 60 seconds, if you need more let me know.

 

[TC Nole OX]

Singapore prime minister