# Educamate me on trade deficits, please! **URL:** \ **Category:** Factual Questions\ **Created:** [July 4, 2018, 12:28am UTC](https://boards.straightdope.com/t/educamate-me-on-trade-deficits-please/817257 "2018-07-04T00:28:45Z")\ **Posts on this page:** 20\ **Page:** 2
**Author:** ![puddleglum](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/puddleglum/32/137_2.png) [@puddleglum](https://boards.straightdope.com/u/puddleglum)\ **Post date:** [July 5, 2018, 2:12pm UTC](https://boards.straightdope.com/t/educamate-me-on-trade-deficits-please/817257/21 "2018-07-05T14:12:34Z")
The US has had a trade deficit every year for over 40 years. Nothing bad has happened so far and it seems sustainable. ---
**Author:** ![septimus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/septimus/32/410_2.png) [@septimus](https://boards.straightdope.com/u/septimus)\ **Post date:** [July 5, 2018, 3:11pm UTC](https://boards.straightdope.com/t/educamate-me-on-trade-deficits-please/817257/22 "2018-07-05T15:11:34Z")
> [@Chronos](#): > > I don’t think it’s even theoretically possible for a country’s currency to be the world’s de facto reserve currency, without that country having a trade deficit. [This document provides a detailed and informative look at U.S. payments account from 1946-1960.](https://fraser.stlouisfed.org/files/docs/publications/frbslreview/rev_stls_196103.pdf) Table 2 on Page 5 even shows the gold sales/purchases which make each line balance to zero! The U.S. had a trade surplus in every one of those years. The U.S. also had a trade surplus [almost every year from 1960 to 1975](https://www.census.gov/foreign-trade/statistics/historical/gands.pdf), and only a modest deficit as recently as 1991-1992. The dollar has arguably been a de facto standard for more than a century, and certainly since the agreements signed at Bretton Woods, New Hampshire in 1944. ---
**Author:** ![Caldazar](https://avatars.discourse-cdn.com/v4/letter/c/8e8cbc/32.png) [@Caldazar](https://boards.straightdope.com/u/Caldazar)\ **Post date:** [July 5, 2018, 3:13pm UTC](https://boards.straightdope.com/t/educamate-me-on-trade-deficits-please/817257/23 "2018-07-05T15:13:38Z")
> [@septimus](#): > > It’s frequently repeated here that national finance is different from household finance … but it’s not _that_ different. If my household has monthly income of $10,000 but spends $12,000, is that sustainable? Only if lenders are happy to continue lending and/or our assets rise in value with sufficient speed. > > The U.S.'s account deficit is mainly the aggregation of our millions of households. Our debts rise as we happily spend. Yes, this is true, but this has nothing to do with trade deficits. You’d have the exact same problem even if you had no trade deficit and instead you bought $12,000 of domestic goods and services. The fact that your outlays are greater than your income is the issue, not the fact that you’re buying foreign goods vs. domestic goods. It’s just that when it’s foreign actors on the receiving end of your money, it introduces some additional wrinkles and potential risks. A long-term trade deficit need not be unsustainable. If your income is such that your trade deficits are small compared to your aggregate income and income growth rates, any potential negative effects of the trade deficit are blunted. Now, the United States’ trade deficit may or may not be sustainable; that’s a question best addressed by folks smarter than I am. But there is nothing inherently “good” or “bad” about trade deficits per se (addressing the OP), even sustained trade deficits. ---
**Author:** ![septimus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/septimus/32/410_2.png) [@septimus](https://boards.straightdope.com/u/septimus)\ **Post date:** [July 5, 2018, 3:36pm UTC](https://boards.straightdope.com/t/educamate-me-on-trade-deficits-please/817257/24 "2018-07-05T15:36:23Z")
> [@Caldazar](#): > > Yes, this is true, but this has nothing to do with trade deficits. You’d have the exact same problem even if you had no trade deficit and instead you bought $12,000 of domestic goods and services. That household would have the same problem, but we’re looking at an _aggregate_. If Californian households mostly earn surpluses while Oregon run deficits, there would be a wealth transfer from Oregon to California. Admittedly this net wealth transfer might be irrelevant to most of the residents of both California and Oregon. Please note that I’m NOT arguing against trade deficits; I’m just arguing against some of the simplistic claims being made in the thread. ---
**Author:** ![Flyer](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/flyer/32/7298_2.png) [@Flyer](https://boards.straightdope.com/u/Flyer)\ **Post date:** [July 5, 2018, 4:32pm UTC](https://boards.straightdope.com/t/educamate-me-on-trade-deficits-please/817257/25 "2018-07-05T16:32:02Z")
A trade deficit is, in general, not nearly as bad as some people believe. Pat Buchanan wants the US to run a trade surplus. But sometimes, that’s actually worse than a deficit. > [@](#): > > Germany exporting more than it imports is becoming a big problem for its economy, a director from the country’s closely-watched Ifo Institute said Wednesday. > > “(The trade surplus) is turning out to be an increasing issue, not just with the U.S. but with other trade partners as well, and also within the European Union,” Gabriel Felbermayr, the director of the Ifo Center for International Economics at the Munich-based institute, told CNBC’s “Squawk Box Europe.” > **[Germany’s massive trade surplus ‘is becoming toxic,’ Ifo director says](https://www.cnbc.com/2018/07/04/germanys-massive-trade-surplus-is-becoming-toxic-ifo-director-says.html)** > > Germany exporting more than it imports is becoming a big problem for its economy, the director of the country’s closely-watched Ifo Institute said Wednesday. Back when the Great Recession hit, Germany was in big trouble–because not many people wanted to buy their products anymore. ---
**Author:** ![septimus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/septimus/32/410_2.png) [@septimus](https://boards.straightdope.com/u/septimus)\ **Post date:** [July 5, 2018, 5:28pm UTC](https://boards.straightdope.com/t/educamate-me-on-trade-deficits-please/817257/26 "2018-07-05T17:28:37Z")
Where does one draw one’s circle of allegiance? A person wants what’s best for his family, but also what’s best for his town or city. And don’t residents of Oregon want what’s best for the U.S.A., not just best for Oregon? And what about the whole world? Does anyone think it’s all a zero-sum game, that what’s good for the U.S. should automatically be bad for other countries? One thing I think most of us will agree on: _ **The U.S.A. running trade deficits has been a huge boon for the world economy.** _ ---
**Author:** ![DrCube](https://avatars.discourse-cdn.com/v4/letter/d/a3d4f5/32.png) [@DrCube](https://boards.straightdope.com/u/DrCube)\ **Post date:** [July 5, 2018, 5:51pm UTC](https://boards.straightdope.com/t/educamate-me-on-trade-deficits-please/817257/27 "2018-07-05T17:51:17Z")
If I go to the store, and I decide to spend $40 on something the seller and I both agree is worth $40, then as far as I’m concerned it was an even trade, not a deficit of any kind. That’s true whether the store is down the block or in China. Basically I don’t think trade deficits exist, at least so long as the trade is free and not coerced in any way. ---
**Author:** ![septimus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/septimus/32/410_2.png) [@septimus](https://boards.straightdope.com/u/septimus)\ **Post date:** [July 5, 2018, 7:15pm UTC](https://boards.straightdope.com/t/educamate-me-on-trade-deficits-please/817257/28 "2018-07-05T19:15:08Z")
> [@DrCube](#): > > … Basically I don’t think trade deficits exist, at least so long as the trade is free and not coerced in any way. So the Mods should close the thread? :rolleyes: ---
**Author:** ![gdave](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/gdave/32/3683_2.png) [@gdave](https://boards.straightdope.com/u/gdave)\ **Post date:** [July 5, 2018, 7:39pm UTC](https://boards.straightdope.com/t/educamate-me-on-trade-deficits-please/817257/29 "2018-07-05T19:39:51Z")
> [@septimus](#): > > It’s frequently repeated here that national finance is different from household finance … but it’s not _that_ different. If my household has monthly income of $10,000 but spends $12,000, is that sustainable? Only if lenders are happy to continue lending and/or our assets rise in value with sufficient speed. > > The U.S.'s account deficit is mainly the aggregation of our millions of households. Our debts rise as we happily spend. As **Caldazar** points out, the problem in this scenario is the debt, not who it’s owed to. The trade deficit is a result of overspending and relatively low savings rates, not a cause. I’d agree that aggregate U.S. spending is too high and savings too low, but I really don’t see how having a trade deficit makes the results worse. > [@septimus](#): > > You ask for cites. [Here’s a 2000 essay by an economics professor](http://www.imf.org/external/pubs/ft/fandd/2000/03/mann.htm). I’ve reddened a phrase congruent to my own remark. > [Here’s another essay](http://finance.wharton.upenn.edu/~bodnarg/courses/readings/USdefsustain_Cooper.pdf), which takes your side, I guess. He, like me, points out that transfer of assets and debt instruments is the key effect of deficits, but seems to argue that, while the growth rate of assets is limited, the growth rate of debt instruments isn’t! :eek: Thank you. Interesting reads. One thing to note - both essays are primarily discussing the _current account_ deficit, not the trade deficit per se. As I noted in my post, a large current account deficit is indeed problematic, and it is true that large trade deficits tend to drive current account deficits. However, the U.S. current account deficit seems to be manageable at the moment. Note the first essay you cite is from 2000(!) and is predicting…something by 2005. Nonetheless, here we are in 2018, and while the U.S. has suffered severe economic problems, a balance of payments crisis has not actually been among them. Also, note that Catherine Mann, in that essay, argues: > [@](#): > > At some point, either the United States’ negative net international investment position and the associated servicing costs will become too great a burden on the U.S. economy or, more likely, global investors will decide that U.S. assets account for a big enough share of their portfolios and so will stop acquiring more of them. And yet, again, here we are, 18 years later, and there’s no sign of that happening. Just how long term is long term? > [@septimus](#): > > I think you’ve got this backwards! While “converting it to other currencies” is irrelevant — it just means some other entity decides what to do with the dollars — the U.S. is delighted when foreigners stuff their dollars under the mattress (or, stuff them into bank vaults) instead of buying U.S. assets. Foreign holding of U.S. banknotes is estimated at $700 billion (! :eek:) — that’s actual portraits of Benjamin Franklin; when bank accounts are included the total rises further. This “high status” of the U.S. dollar is one reason our trade deficit is so benign! 🙂 I wrote a rather lengthy reply to the above, then thought better of it. It’s been a long time since I’ve studied international economics, and I realized after writing my response that I’d gone beyond my own competence. In brief, it’s my (possibly flawed) understanding that as long as foreigner holders of $US continue to want $US and continue to view the U.S. as an attractive investment destination, the flow of $US overseas doesn’t really matter, as the bulk of it flows right back in as investments. It’s when exporters want to dump all the $US that they get that the problems arise. Again, current account deficit, not trade deficit (although the two are related). And, again, the U.S. current account deficit seems to be relatively small and manageable, Catherine Mann’s warning from 2000 notwithstanding. ---
**Author:** ![Fotheringay-Phipps](https://avatars.discourse-cdn.com/v4/letter/f/d9b06d/32.png) [@Fotheringay-Phipps](https://boards.straightdope.com/u/Fotheringay-Phipps)\ **Post date:** [July 5, 2018, 8:49pm UTC](https://boards.straightdope.com/t/educamate-me-on-trade-deficits-please/817257/30 "2018-07-05T20:49:47Z")
> [@Caldazar](#): > > The analogies of the finances of nations and their governments to those of personal finance are rather misguided. By this logic, I have a severe “trade deficit” with my local grocery store. And yet my household finances seem to be holding up reasonably well. This whole analogy is bonkers; nations do not function like persons. > > A trade deficit is merely and outflow of money and an inflow of goods/services with respect to the nation being considered; nothing less, nothing more. Whether such a trade is “good” or “bad” depends entirely on what is being traded. Took out a high-interest loans to buy foreign made big-screen TVs? Yeah, probably not so great. Spent accumulated cash to purchase foreign-made manufacturing systems so that we could increase output by 10%? Perhaps a good deal. And so on. > > Next, one has to consider what the foreign nation intends to do with the money it has received from the trade. Shove the money in a vault at 0% interest (or buy low-yield bonds from the government who issued the currency, which is materially similar)? Okay, have fun. Take the money and buy up real estate in the source country? Hmmm, okay, we traded imported goods for land but my land is a finite resource, so real estate price inflation may result. “How much do I care that some other nation and its people are holding a bunch of my nation’s currency?” Depends entirely on what the foreign nation and its actors plan to do with that currency. > > How much I care also depends on how rapidly I can create new value domestically. If I’m creating $100 of new value a year, I’m probably not overly concerned if I then trade away $3 to buy someone else’s stuff. Whatever they decide to do with that $3, it probably won’t hurt me too badly (I hope, anyway). If I’m creating $100 of new value a year, but trading away $97 of that to buy someone else’s stuff, the risk that they can cause issues for me down the road is a lot higher when they eventually try to deploy their assets. I’m not an economist or an expert on these matters. That said, from my lay vantage point, ISTM that much of what you (and others who have written similarly) say is technically true but misses the point. Let’s say trade deficits are completely “sustainable” indefinitely. That just means that the economy can go on indefinitely with these trade deficits. But the key issue is who owns the economy. If there’s a trade deficit, then that means that foreigners own an increased percentage of the economy, whether in the form of equity or in the form of debt. That means that an increased percentage of the country’s economic output will end up in the hands of foreigners as opposed to ending up in the hands of local citizens. So let’s suppose that goes on indefinitely. At some point 100% of the local economy - equity in companies, real estate, etc. - belongs to foreigners. All profits from local economic endeavor and local resources go to foreigners. Is that sustainable? I suppose so. (I’m not sure how you measure trade deficits when local output is owned by foreigners.) Is it desirable? I would think not. So I don’t think “sustainable” is quite the proper measure here. Your comparison of your “severe “trade deficit” with [your] local grocery store” is a good example of this. Yes, you do have a severe trade deficit with your local grocery store. But that’s not an illustration of your claim that “nations do not function like persons”. Your severe trade deficit with your local grocery store is more than offset by your even greater trade surplus with your employer. If you add up the surplus with your employer and your deficit with all your tradespeople etc., you would hopefully balance. If you don’t, then you’re either running up debt or selling your assets, and if you keep that up long term you’re in big trouble. As to why the current deficits exist, there can be room for multiple factors. Some say it’s American consumerism, and I assume this is correct. This is like a person who is selling or mortgaging his assets in order to spend it now. OK. That might not be smart but is within his rights. But let’s say it’s also true that certain countries are deliberately manipulating the trade situation, whether via tariffs or currency manipulation, in order to keep America in a deficit position, then that’s a problem too. And it’s worth trying to do something about. ---
**Author:** ![wevets](https://avatars.discourse-cdn.com/v4/letter/w/e9a140/32.png) [@wevets](https://boards.straightdope.com/u/wevets)\ **Post date:** [July 6, 2018, 4:00am UTC](https://boards.straightdope.com/t/educamate-me-on-trade-deficits-please/817257/31 "2018-07-06T04:00:50Z")
> [@Fotheringay-Phipps](#): > > That means that an increased percentage of the country’s economic output will end up in the hands of foreigners as opposed to ending up in the hands of local citizens. > > So let’s suppose that goes on indefinitely. At some point 100% of the local economy - equity in companies, real estate, etc. - belongs to foreigners. All profits from local economic endeavor and local resources go to foreigners. Well, trade has been around for a long time. Can you identify any places where this has happened? ---
**Author:** ![md2000](https://avatars.discourse-cdn.com/v4/letter/m/73ab20/32.png) [@md2000](https://boards.straightdope.com/u/md2000)\ **Post date:** [July 6, 2018, 4:18am UTC](https://boards.straightdope.com/t/educamate-me-on-trade-deficits-please/817257/32 "2018-07-06T04:18:53Z")
> [@wevets](#): > > Well, trade has been around for a long time. Can you identify any places where this has happened? Not exactly, but the Royal Navy got into the drug trade to facilitate rebalancing a trade imbalance. When the west figured out how to trade with China, they bought tea. China demanded payment in silver. All the silver was going to China, and none was coming back; silver was getting in short supply… so the West figured out that the one thing they could sell the Chinese to recoup some of their silver was… opium from their India holdings. For some reason, the Chinese emperor did not appreciate westerners trafficking in drugs, and a war resulted where the Royal Navy forced the Chinese to open their country to opium trafficking. * * * Basically, if an American uses their dollars to pay for imports, then the recipient has dollars to spend. They might buy something from the USA, or use it to buy something from someone else who hopefully, will buy something from the USA. But ultimately, either there’s a whole bunch of dollars being used as money overseas (good riddance) or the money ultimately has to be spent in the USA. That means they either buy something made in the USA and the dollars come home; or they buy a piece of the USA. In the 80’s and 90’s, Arabs were buying a lot of US real estate or companies. in the 80’s, the Japanese were. Today, the Chinese are. If too much US money leaves the country, there’s a glut and the value goes down. If everyone wants to buy US goods services or real estate, then they want dollars and will pay more for them. And so on… ---
**Author:** ![wevets](https://avatars.discourse-cdn.com/v4/letter/w/e9a140/32.png) [@wevets](https://boards.straightdope.com/u/wevets)\ **Post date:** [July 6, 2018, 4:29am UTC](https://boards.straightdope.com/t/educamate-me-on-trade-deficits-please/817257/33 "2018-07-06T04:29:29Z")
> [@md2000](#): > > If too much US money leaves the country, there’s a glut and the value goes down. If everyone wants to buy US goods services or real estate, then they want dollars and will pay more for them. And so on… But the suggestion was not that the value of the dollar would decrease - that would make sense. The suggestion was that the foreign nation wound up owning all the assets of the nation with the trade deficit- that China, for example, would own all of Britain, which the historical record tells us did not happen and does not make any sense at all. (Instead Britain wound up conquering parts of China like Hong Kong with military force\*, which is typically how a foreign nation winds up owning all the assets of another country.) > [@Fotheringay-Phipps](#): > > If there’s a trade deficit, then that means that foreigners own an increased percentage of the economy, whether in the form of equity or in the form of debt. That means that an increased percentage of the country’s economic output will end up in the hands of foreigners as opposed to ending up in the hands of local citizens. > > So let’s suppose that goes on indefinitely. At some point 100% of the local economy - equity in companies, real estate, etc. - belongs to foreigners. All profits from local economic endeavor and local resources go to foreigners. \*Well, forcing China to sign extortionate treaties - same diff. ---
**Author:** ![septimus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/septimus/32/410_2.png) [@septimus](https://boards.straightdope.com/u/septimus)\ **Post date:** [July 6, 2018, 5:43am UTC](https://boards.straightdope.com/t/educamate-me-on-trade-deficits-please/817257/34 "2018-07-06T05:43:19Z")
> [@wevets](#): > > Well, trade has been around for a long time. Can you identify any places where this has happened? The Asian financial crisis of 1997 involved a variety of interacting trends and mistakes, and I’m not qualified to produce a synopsis. However, whether you treat it as cause or effect, _ **current account deficits were the key symptom of the disease.** _ [“The current account in Thailand was over 6% of GDP virtually in each year in the 1990s, and approached 9% of GDP in 1995 and 1996.”](https://www.newyorkfed.org/medialibrary/media/research/economists/pesenti/whatjapwor.pdf) Foreign capital flooded in as interest rates soared. AGAIN: _Please_ do not extrapolate on a comment about the Asian financial crisis to assume I am prescribing for the present-day U.S. :smack: On the question of whether Trump’s plans to reduce the trade deficit are well-advised I think I agree with the opinion of Fed Chief Jerome Powell as shown by [the expression on his face a few weeks ago](https://www.marketwatch.com/story/fed-minutes-preview-suggestions-the-fed-slow-down-interest-rates-probably-didnt-get-much-love-in-june-2018-07-03). ---
**Author:** ![penultima\_thule](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/penultima_thule/32/3833_2.png) [@penultima\_thule](https://boards.straightdope.com/u/penultima_thule)\ **Post date:** [July 6, 2018, 6:18am UTC](https://boards.straightdope.com/t/educamate-me-on-trade-deficits-please/817257/35 "2018-07-06T06:18:00Z")
> [@septimus](#): > > The Asian financial crisis of 1997 … Foreign capital flooded in as interest rates soared. No. The Asian Financial Crisis was an asset (principally real estate) price bubble financed by foreign direct investment. Unsustainable valuations coupled with the US Fed increasing interest rates saw foreign capital flooding out of the region. A flight of capital made materially worse by currencies pegged to the USD as currency traders circled like vultures and won. Concur there are negligible parallels between the causes and consequences of the AFC and the current US trade deficit. ---
**Author:** ![septimus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/septimus/32/410_2.png) [@septimus](https://boards.straightdope.com/u/septimus)\ **Post date:** [July 6, 2018, 6:38am UTC](https://boards.straightdope.com/t/educamate-me-on-trade-deficits-please/817257/36 "2018-07-06T06:38:09Z")
> [@penultima\_thule](#): > > No. > > The Asian Financial Crisis was an asset (principally real estate) price bubble financed by foreign direct investment. > > Unsustainable valuations coupled with the US Fed increasing interest rates saw foreign capital flooding out of the region. A flight of capital made materially worse by currencies pegged to the USD as currency traders circled like vultures and won. > > Concur there are negligible parallels between the causes and consequences of the AFC and the current US trade deficit. It sounds like we agree on the “a variety of interacting trends and mistakes.” 🙂 I assume you admit that the trade deficit, whatever caused it, was a key symptom which precipitated the crisis. As for capital flooding in and flooding out, I’m pretty sure I win the cause-effect debate here! (Yes, as with most financial crises, panic set in and greatly compounded the damages.) When [Johnstown was inundated on May 31,1889](https://en.wikipedia.org/wiki/Johnstown_Flood), the immediate event was associated with a very _low_ level of water remaining behind the South Fork Dam. But I feel confident that many observers would instead point the finger of blame at the very _high_ level of water behind that Dam on May 30! 🙂 . ---
**Author:** ![gdave](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/gdave/32/3683_2.png) [@gdave](https://boards.straightdope.com/u/gdave)\ **Post date:** [July 6, 2018, 11:57am UTC](https://boards.straightdope.com/t/educamate-me-on-trade-deficits-please/817257/37 "2018-07-06T11:57:05Z")
> [@Fotheringay-Phipps](#): > > If there’s a trade deficit, then that means that foreigners own an increased percentage of the economy, whether in the form of equity or in the form of debt. That means that an increased percentage of the country’s economic output will end up in the hands of foreigners as opposed to ending up in the hands of local citizens. > > So let’s suppose that goes on indefinitely. At some point 100% of the local economy - equity in companies, real estate, etc. - belongs to foreigners. All profits from local economic endeavor and local resources go to foreigners. Assuming a spherical cow, sure. But that’s not how it works in the real world. First, while the U.S. trade deficit is large as trade deficits go, as a share of the overall U.S. economy, it’s actually quite small. In 2016, the U.S. trade deficit was about $500 billion. But the U.S. GDP in 2016 was over $18.5 _trillion_. Second, economic growth is a thing. If foreigners buy ever increasing slices of the U.S. economic pie, but the size of the pie and thus the number of slices also continues to increase, the share owned by foreigners may not actually grow by much, if at all. Finally, going back to how small the trade deficit is to the overall GDP, all of those foreigners are competing with U.S. citizens to purchase U.S. assets. Supply and demand - it’s not as if the prices of U.S. assets are completely inelastic. As foreign demand for U.S. assets increase, so will the price - but foreign demand is marginal compared to domestic demand for the same assets. > [@Fotheringay-Phipps](#): > > As to why the current deficits exist, there can be room for multiple factors. Some say it’s American consumerism, and I assume this is correct. This is like a person who is selling or mortgaging his assets in order to spend it now. OK. That might not be smart but is within his rights. But let’s say it’s also true that certain countries are deliberately manipulating the trade situation, whether via tariffs or currency manipulation, in order to keep America in a deficit position, then that’s a problem too. And it’s worth trying to do something about. OP specifically requested an Econ 101 analysis, not a political discussion, so I’m going to steer clear of details here, but of course other countries are “deliberately manipulating the trade situation.” So is the U.S. Everyone is. I think you mean, though, that certain countries are doing so in violation of international trading rules. I personally can’t imagine that they are doing so “in order to keep America in a deficit position” per se (what would be the point of that?), but sure, countries “cheat” in order to enhance their own trade position. And sure, it’s probably worth trying to do something about it. But. It is true that there are multiple factors driving the U.S. trade deficit, and while certain countries “cheating” is almost certainly one factor, it’s a marginal one. U.S consumerism is driving our trade deficit. We spend a lot of money, and don’t save very much. The U.S. is a big, internationally active economy that buys a lot more than it saves. China is a big, internationally active economy that buys a lot less and saves a lot more. Even on a perfectly level playing field, the U.S. is going to have a large trade deficit with China. ---
**Author:** ![gdave](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/gdave/32/3683_2.png) [@gdave](https://boards.straightdope.com/u/gdave)\ **Post date:** [July 6, 2018, 12:25pm UTC](https://boards.straightdope.com/t/educamate-me-on-trade-deficits-please/817257/38 "2018-07-06T12:25:14Z")
> [@septimus](#): > > I assume you admit that the trade deficit, whatever caused it, was a key symptom which precipitated the crisis. Not the trade deficit, but the current account deficit, which is related but separate. But take another look at your own cite. “The current account in Thailand was over 6% of GDP virtually in each year in the 1990s, and approached 9% of GDP in 1995 and 1996.” In contrast, [U.S. current account deficit](https://tradingeconomics.com/united-states/current-account-to-gdp) in 2016 was only 2.6%, and has been near that level since 2009. It had been growing in the early 2000s, and peaked at 6% of GDP in 2006, and then sharply fell. Also, a key difference is that Thailand and other Asian economies involved in the crisis had a lot of foreign debt, much of it $US denominated. There was a lot of downward pressure on the Thai baht. The Thai government tried to defend its value in international currency markets, and spent a lot of resources doing so. They ultimately failed. As the value of the baht crashed relative to the dollar, the cost of servicing the dollar debt sky-rocketed. The same was largely true of the other countries involved in the crisis. This is the common vicious cycle for small, developing economies: $US denominated loans from the World Bank, foreign governments, and banks \> widening current account deficits from overspending \> drastic currency devaluation \> skyrocketing costs of servicing debt \> IMF bridge loans and IMF-mandated structural adjustments \> severe recessions and loss of fiscal and monetary autonomy. In stark contrast, U.S. debt, both private and public, is overwhelmingly denominated in $US. Even if chronic trade deficits ultimately cause a crash in value for the $US (which they probably wont’ - see below), that won’t directly affect the cost of servicing our debts. Also, all of those countries hit by the Asian financial crisis, while rapidly growing, were small. When foreign investors wanted to move out of holding baht and baht-denominated assets, they had plenty of other choices, and those assets were generally small components of their portfolios. If foreign investors want to move out of holding $US and $US denominated assets, where are they going to go? The U.S. is still the world’s largest economy, and the $US is still the world’s reserve currency. As the saying goes, if you owe the bank $100 that’s your problem; if you owe the bank $100 million, that’s the bank’s problem ---
**Author:** ![md2000](https://avatars.discourse-cdn.com/v4/letter/m/73ab20/32.png) [@md2000](https://boards.straightdope.com/u/md2000)\ **Post date:** [July 6, 2018, 1:15pm UTC](https://boards.straightdope.com/t/educamate-me-on-trade-deficits-please/817257/39 "2018-07-06T13:15:55Z")
I would assume too that the value of assets of a country - real estate, factories, etc. - would be so much higher than the simple imbalance of trade numbers that it would take an extremely long time for the trade deficit to cover the purchase of all assets. Something would break the cycle long before the results were anywhere near 100%. As I mentioned, assorted trade surplus countries have been buying up American assets for decades, and are nowhere near a significant percentage of the US asset base. (Japan, the Middle East, now China…) More likely, such imbalance is historical rather than recently trade-induced. Idi Amin, for example, kicked out the East Indian class because they were overwhelmingly the owners of all the enterprises not owned by the colonial power. But that wasn’t trade imbalance, it was because the Indians had the connections and jumped in while the locals were still economically illiterate. The biggest complaint was that all the profits went off to India instead of being reinvested locally. ---
**Author:** ![Fotheringay-Phipps](https://avatars.discourse-cdn.com/v4/letter/f/d9b06d/32.png) [@Fotheringay-Phipps](https://boards.straightdope.com/u/Fotheringay-Phipps)\ **Post date:** [July 6, 2018, 1:44pm UTC](https://boards.straightdope.com/t/educamate-me-on-trade-deficits-please/817257/40 "2018-07-06T13:44:22Z")
> [@wevets](#): > > Well, trade has been around for a long time. Can you identify any places where this has happened? No. I would guess that advances in transportation and shipping have made trade a much bigger portion of modern economies as compared to historical norms. But more importantly, “indefinitely” is always theoretical. In the real world, “indefinitely” never happens. Things change. Wars, revolutions, economic upheavals, or more gradual changes. Nothing lasts forever. The point of discussing what would happen if something lasted indefinitely is to illustrate what the ongoing impact of something is. If something is negative, then this would be illustrated by contemplating the extreme negative consequences if it were to theoretically happen indefinitely. If something is benign, then this too can be illustrated by pointing to a hypothetical scenario in which the situation persists indefinitely. But that doesn’t mean that anything actually lasts indefinitely in the real world. Bottom line is as I wrote above. Every time you buy more than you sell - whether you’re a person or a country - then you either incur debt or you sell assets. There doesn’t seem to be any way around this. If there is, then please describe what that is. [Previous page](https://boards.straightdope.com/t/educamate-me-on-trade-deficits-please/817257.md?page=1) [Next page](https://boards.straightdope.com/t/educamate-me-on-trade-deficits-please/817257.md?page=3)