A long time ago, Britain was the dominant economic power in the world.
Britain had a massive trade deficit with India. It imported far more from India than it exported to India.
But 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.
Should it have flipped the other way? In 1800, should Britain have suddenly shifted gears and started massively exporting to India in order to balance the trade?
Sure, India was a colony and not a mere trading partner, so no need to argue about that. But the US is also an empire that has bases around the world and has many countries in an economic chokehold. The situation is similar in a modern context since official colonization is kind of gone. The US takes in lower value products from around the world and sells them back to the original country at a higher price due to some sort of added value.
Should America do the opposite? Should we drop all of our high value scientific and medical research, drop our engineering, and go all in on making t-shirts to balance the trade deficit? Because we very well could do this. We could steal away the fine industry of Cambodia and Bangladesh and have them buy all our t-shirts and balance the deficit pretty quickly. But is that a long term benefit?
Cambodia and Bangladesh are countries that can't really afford to buy massive amounts of American high tech exports or foods. But they're essentially colonies that export goods to other countries, and through accumulating wealth through that development, more people can afford to buy American high tech products. But we're demanding that these countries buy lots of American products now with money that they don't have. The only way to balance that is to make things they can afford. Which means low value items.
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.
I get the sentiment, but using ship building is an unfortunate example with respect to substantiating your point. The US shipbuilders are alive and well (not to the extent they were in WWII era). Military ships, Jones Act compliant commercial vessels, ferries, tugboats, etc. All US made.
Separately, your first paragraph also seems problematic. Let’s take Vietnam and Cambodia as examples: neither has a US military base, port, nor sells natural resources to “Wall St”.
Finally, I’m not sure I follow how that would cause the US to accumulate 50% of the world’s market cap—especially because the vast majority of the companies in the S&P 500 have nothing to do with defense, shipping or natural resources. I haven’t done the math, but I would venture to guess that >50% of the S&P 500 market cap is tech or tech-adjacent.
- 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.
What's funny is the tariffs announced a couple day sago explicitly excluded semi conductors and pharmaceuticals. We are literally about to tariff t-shirts but not those more strategic industries.
>> the US is not the ultimate global hegemon anymore
The hegemon concept is also out of date. World trade is not dominated by countries but by multinationals. For instance, there are no real "US" car companies. There are a handful of huge conglomerates who can choose to operate wherever best suits their needs. These respond to edicts from individual countries but operate at a level above nation states.
This is why international cooperation on things like taxation or environmental protection is so important. And it is why petty bickering by individual nations will be so damaging.
Come on, did you see the trade for goods and services deficit with EU? It's ludicrous. But hey, the president decided to focus only on goods. Why not on everything? Because it's unjustified. He needs money. A lot. And throwing out accusations at other countries is the only way he can get out of it fine. If he had just set a 10-15% tax on all imports "just because" people would have never approved. Now, on the other hand, look at those unfair European, Canadians, Mexicans, ... penguins :)
> The t-shirt metaphor is completely unjust - there is no value there for national security nor strategic autonomy.
And yet tariffs were put on countries where clothes are generally manufactured and imported into the US from, which is why companies like Nike got walloped on the stock market.
> 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.
Trump et al put a 37% import tariff on Botswana. What national security interest is served by that?
Israel got a 17% tariff place on it, but Iran is part of the general 10% tariff list. If these are about national security, why does Israel have a higher number than Iran?
> 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!
I choose to buy more expensive clothing produced in places that pay employees a decent wage.
I think the US should pay them more. But the fact of the matter is people really want socks and shirts for a few dollars. People can choose to pay more and avoid sweatshops right now. But the fact is, most don't want to do that, and when given a choice, they won't.
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".
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.
> The US does not have most countries in an economic chokehold
For most of living history, the US went out of it's way to ensure that crude oil is sold in USD, including oil that's extracted in oilfields halfway around the world. There's only one way to get USD is to trade with the US.
> The US does not have most countries in an economic chokehold
Tell that to any country having trouble repaying USD denominated debts. The US loves lending money to other countries, especially via military goods, and then the US uses the debt as a hammer.
>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"..
> 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.
> Sure, India was a colony and not a mere trading partner, so no need to argue about that. But the US is also an empire that has bases around the world and has many countries in an economic chokehold.
That seems to resolve the question you put. Britain and India weren't independent, so talking about a trade balance between the two doesn't really mean anything. If it favoured India, that was good for the British Empire. If it favoured Britain, that was also good for the British Empire. It didn't matter who was favoured or by how much because the British capitalists and Imperial officers were in control of both sides of the trade.
I personally think the US trade deficit is a huge problem ... for the US's trading partners who just gave it real stuff for paper. But your argument for why Britain-India experience was relevant doesn't hold together.
Britain was not importing.
Britain was stealing resources from India.
It was beyond slavery.
The words plunder and pillage come to mind.
USA on the other hand has a completely different problem (perhaps opposite of what you describe - being the world’s gracious and benevolent trade partner).
Interesting, and worrying at the time, but he clearly turned out to be wrong. The trend never stopped [1] and is not obviously responsible for any negative economic trend. The trend has continued [2]. The thing to worry about is probably not that it is happening, but who is holding these investments.
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.
This. There is a joke that Germany delivered Porsches in the 1990s and hot .com stocks in return, and then until 2008 they got CDOs in return. And t-bills -- the US has been a major exporter of TBills.
Fwiw, the US has a big surplus in services,so it'll be interesting to see if other countries retaliate against that.
So, you don't want to have "the world" own shares of american companies?
Okay, let europe just sell all their stocks and ETF. But also, let them build alternatives to all american products. Let them keep the money they are spending for their Windows and Office licenses, their Netflix and Disney plans. Let them no longer create ad revenues on youtube. Let them buy korean Samsung phones instead of american iPhones.
Would that be a good deal for the american people?
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.
Interesting take. I would love to see more competition in the smartphone OS market for example, but the problem is that at the same time, the tariffs kill international competition…
> 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.
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.
Get this: China sends us all this great stuff, and the only thing they get is OUR FIAT CURRENCY, which is essentially worthless. And then, what do they do with that currency? They buy our treasury bonds, which pay them interest in our own fiat currency. Not only that, but every bond they buy is more encouragement to help us keep the US economy strong and stable. The trade deficit thing looks like a great deal for us when viewed from some angles.
That sounds like a forerunner to Ricardian comparative advantage which is a major (really the major) reason for thinking international trade makes everyone better off.
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.
Most of that $600 is BOM inputs where most of high end components worth $$$$$ is ultimately captured by US / western suppliers (i.e. chips, sensors, screens for iphones). The actual value of export from PRC in terms of material and labour is $, but still counted as $$$$$+$. Though iphone/high tech unique since US plays hand - sanction $$$$$ PRC components so Apple can't integrate them and raise PRC share of Apple BOM, which IIRC grew to ~20% and on way 40%+ (prc memory + screen) and now <20%. This is something PRC stats has started adjusting for.
The physical phone is a "good" that is exported from china. But the majority of the value for an iPhone is in the "services" rendered to that phone, which may be sold/exported from the US but can likely be shifted to other countries in order to avoided taxation/tariffs.
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.
I'd have expected better from Warren Buffett. It's not a zero-sum game, the developed countries running chronic trade surpluses like Germany and Sweden (my home country) are fooling themselves, because the only way they can do that is by putting a brake on domestic consumption by keeping wages low.
Everybody in the EU would be better off if those countries actually let their consumers spend the money that they're hoarding. All of that spending wouldn't go on foreign goods, so it would even benefit their own producers as well. Yet German politicians indoctrinated in stupid frugality (that once had a point, but is completely outdated) continue to scold countries that run trade deficits in order to buy German goods instead of suffocating their economy and making it even worse for everybody, especially Germany.
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.
It seems like the way to "fix" a trade deficit is to create products the rest of the world actually wants to buy. The application of any reciprocal arrangement, whether tariffs or these ICs as proposed in the article only achieves "balance" through punishing others.
Aside from the obvious consumer technology and software I am hard pushed to think of any USA produce I would buy that would meet the standards we have in the EU.
The simple reality is that the USA consumes more than it produces.
> 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.
That's a vague and unconvincing chicken little argument for not making models using the wealth of open and for-purchase data that's available and understanding the limitations.
Economics likes to present the facade of a hard science with equations and rules - but macro economics simply doesn't work the same way as physics, and pretending that your equations are going to be a crystal ball has so far proved mostly bullshit.
Too many things depend on decisions made by actors acting under very complex and dynamic social constraints, rather than predictable rules.
The end result is that several decades after something happens - we're ok at examining the social/political influence of the time on macro economics, but that insight doesn't do much for us now because circumstances are changing at a pace that has rendered any intuition utterly obsolete.
Americans should study Germany and Japan. Do their economies look healthy? Are those manufacturing jobs attractive? Are the Germans and the Japanese richer? Do Germany and Japan have good economic prospects?
I'll spare you the research. The answer is, "No". Turns out, having an economy based on manufacturing high-end door knobs in 2025 is not great. Economic growth and innovation is not there, because there is so much growth and innovation that you can eke out of high-end door knobs. These enterprises are great for the families that own them, but they employ a relatively low number of workers, those jobs do not pay that much, and they exist is a steady-state. Well, only until China and India figure out how to also manufacture high-end door knobs.
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).
OK, let's put it this way. You would struggle to buy a house if you worked at VW assembling cars. You would be able to rent an apartment and have a relatively good if modest existence. Nothing close to what Americans are able to afford.
But if you wanted to create blue collar jobs and if the government was going to step in and contort the economy with heavy handed measures, anyway, then just setup a public works program and build a bunch of housing, build and maintain energy and transport infrastructure, build climate mitigation projects. That would actually address a real demand and make a whole lot of sense.
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Britain had a massive trade deficit with India. It imported far more from India than it exported to India.
But 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.
Should it have flipped the other way? In 1800, should Britain have suddenly shifted gears and started massively exporting to India in order to balance the trade?
Sure, India was a colony and not a mere trading partner, so no need to argue about that. But the US is also an empire that has bases around the world and has many countries in an economic chokehold. The situation is similar in a modern context since official colonization is kind of gone. The US takes in lower value products from around the world and sells them back to the original country at a higher price due to some sort of added value.
Should America do the opposite? Should we drop all of our high value scientific and medical research, drop our engineering, and go all in on making t-shirts to balance the trade deficit? Because we very well could do this. We could steal away the fine industry of Cambodia and Bangladesh and have them buy all our t-shirts and balance the deficit pretty quickly. But is that a long term benefit?
Cambodia and Bangladesh are countries that can't really afford to buy massive amounts of American high tech exports or foods. But they're essentially colonies that export goods to other countries, and through accumulating wealth through that development, more people can afford to buy American high tech products. But we're demanding that these countries buy lots of American products now with money that they don't have. The only way to balance that is to make things they can afford. Which means low value items.
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.
Separately, your first paragraph also seems problematic. Let’s take Vietnam and Cambodia as examples: neither has a US military base, port, nor sells natural resources to “Wall St”.
Finally, I’m not sure I follow how that would cause the US to accumulate 50% of the world’s market cap—especially because the vast majority of the companies in the S&P 500 have nothing to do with defense, shipping or natural resources. I haven’t done the math, but I would venture to guess that >50% of the S&P 500 market cap is tech or tech-adjacent.
I decry this misplaced pessimism.
Not sure which one the parent means but this is what I found:
https://www.amazon.com/Super-Imperialism-Origin-Fundamentals...
https://en.wikipedia.org/wiki/Super-imperialism
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.
And if a more balanced trade relation arises, your current leadership is willing to destabilize the whole world, and threaten war.
The hegemon concept is also out of date. World trade is not dominated by countries but by multinationals. For instance, there are no real "US" car companies. There are a handful of huge conglomerates who can choose to operate wherever best suits their needs. These respond to edicts from individual countries but operate at a level above nation states.
This is why international cooperation on things like taxation or environmental protection is so important. And it is why petty bickering by individual nations will be so damaging.
That’s why the logical thing to do is invest heavily in education.
Oh, wait.
Buffet's article and Trump's tariffs reflected antipathy to net trade deficits. Not specific strategic concerns.
And yet tariffs were put on countries where clothes are generally manufactured and imported into the US from, which is why companies like Nike got walloped on the stock market.
> 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.
Trump et al put a 37% import tariff on Botswana. What national security interest is served by that?
Israel got a 17% tariff place on it, but Iran is part of the general 10% tariff list. If these are about national security, why does Israel have a higher number than Iran?
There are valid reasons for tariffs:
* https://www.noahpinion.blog/p/when-are-tariffs-good
The universal tariffs that have been acted don't seem to have been done for those reasons.
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!
I think the US should pay them more. But the fact of the matter is people really want socks and shirts for a few dollars. People can choose to pay more and avoid sweatshops right now. But the fact is, most don't want to do that, and when given a choice, they won't.
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?
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.
I think the UK ran a deficit with India, but a surplus with (richer) countries that bought those high value items.
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.
For most of living history, the US went out of it's way to ensure that crude oil is sold in USD, including oil that's extracted in oilfields halfway around the world. There's only one way to get USD is to trade with the US.
Tell that to any country having trouble repaying USD denominated debts. The US loves lending money to other countries, especially via military goods, and then the US uses the debt as a hammer.
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.
[1]https://en.wikipedia.org/wiki/Ashoka_Chakra
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.
That seems to resolve the question you put. Britain and India weren't independent, so talking about a trade balance between the two doesn't really mean anything. If it favoured India, that was good for the British Empire. If it favoured Britain, that was also good for the British Empire. It didn't matter who was favoured or by how much because the British capitalists and Imperial officers were in control of both sides of the trade.
I personally think the US trade deficit is a huge problem ... for the US's trading partners who just gave it real stuff for paper. But your argument for why Britain-India experience was relevant doesn't hold together.
USA on the other hand has a completely different problem (perhaps opposite of what you describe - being the world’s gracious and benevolent trade partner).
And now it's apparent that even being a great ally will result in economic attacks.
So the world gives the US tangible goods. In exchange they get shittalked and more demanded of them.
[1]: https://www.bea.gov/data/intl-trade-investment/international...
[2]: https://fred.stlouisfed.org/graph/?g=1HrHY
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.
Fwiw, the US has a big surplus in services,so it'll be interesting to see if other countries retaliate against that.
Okay, let europe just sell all their stocks and ETF. But also, let them build alternatives to all american products. Let them keep the money they are spending for their Windows and Office licenses, their Netflix and Disney plans. Let them no longer create ad revenues on youtube. Let them buy korean Samsung phones instead of american iPhones.
Would that be a good deal for the american people?
Something is not right with how we calculate these things.
> 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.
https://en.wikipedia.org/wiki/Comparative_advantage
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.
> That’s not true.
You're right. It's not always the "entire" value paid by the consumer.
Everybody in the EU would be better off if those countries actually let their consumers spend the money that they're hoarding. All of that spending wouldn't go on foreign goods, so it would even benefit their own producers as well. Yet German politicians indoctrinated in stupid frugality (that once had a point, but is completely outdated) continue to scold countries that run trade deficits in order to buy German goods instead of suffocating their economy and making it even worse for everybody, especially Germany.
Aside from the obvious consumer technology and software I am hard pushed to think of any USA produce I would buy that would meet the standards we have in the EU.
The simple reality is that the USA consumes more than it produces.
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.
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.
Economics likes to present the facade of a hard science with equations and rules - but macro economics simply doesn't work the same way as physics, and pretending that your equations are going to be a crystal ball has so far proved mostly bullshit.
Too many things depend on decisions made by actors acting under very complex and dynamic social constraints, rather than predictable rules.
The end result is that several decades after something happens - we're ok at examining the social/political influence of the time on macro economics, but that insight doesn't do much for us now because circumstances are changing at a pace that has rendered any intuition utterly obsolete.
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).
But if you wanted to create blue collar jobs and if the government was going to step in and contort the economy with heavy handed measures, anyway, then just setup a public works program and build a bunch of housing, build and maintain energy and transport infrastructure, build climate mitigation projects. That would actually address a real demand and make a whole lot of sense.