Latest 'Trade Deficit' Figures Show Why They're Meaningless

[Chris]

Let me preface this by saying it is an economic argument, not a political one. I understand some of you have valid, albeit risky, political arguments.

Latest 'Trade Deficit' Figures Show Why They're Meaningless

President Trump’s protectionist trade policies have been in place for over a year now. What’s the result? The U.S. trade deficit is bigger than ever.

The Commerce Department reported last week that the U.S trade deficit hit a new record - $881 billion. The trade deficit with China also reached a new high - $419 billion - despite the Trump Administration’s tariff measures aimed at curbing it.

Why the disconnect? For one thing, an increased trade deficit is a sign of a growing economy - something government should try to encourage, not discourage. When people have more money, they purchase more goods from outside the country. In fact, exports did go up (6.3 percent) — just not as much as imports (7.5 percent). This is the third consecutive year of increased trade deficits, topping a record set in 2006 - when the United States was in another period of economic growth. The last time the United States had a trade surplus was in 1975, when the country was in a recession, in the middle of a decade characterized by stagflation. The smallest trade deficit during that time occurred in 2009, during the Great Recession.

When you make it more costly to import, you also make it more costly to export. The inputs manufacturers, such as auto makers, need become more expensive, driving up the cost of goods. Of course, when other countries retaliate, that only reduces U.S exports.

Given these facts, it is hard to see why members of the Administration and other protectionists pursue higher tariffs. People seem to confuse trade deficits with fiscal deficits. But trade deficits are balanced out by foreign investment. And, unlike fiscal deficits, they do not accrue. When one hears fiscal deficits will add $1 trillion per year to the debt, there is reason to be concerned. But the trade deficit does not accumulate, and does not have to be paid down....

[Captain Obvious]

This stuff is over-analyzed and under-understood.

Yes, most people don't understand budget vs. trade deficits but it really doesn't have to be as complicated as some want to make it. It's like one of those things where anyone can carve out a piece of the math and make statements based on that piece alone but disregarding the whole picture is the fluff.

At the end of the day you have to produce more than you consume. If it gets complicated that's the part that needs focus. In a materialistic society that consumes, if it doesn't produce that economy will ultimately collapse. That's the highway we're on right now.

Everything else is window dressing.

I think Trump understands this too and I think he's wielding our clout to get back onto that track. But it's a big hill with China and their production and while growing consumption they are more focused socio-economically than we are in this sense from a standard of living stance.

What's the long run prospect? Economically? Our political system isn't structured to focus on long run prospects, it favors short-term political gains.

So many areas to delve into here but at the end of the day the crash is coming. It's inevitable.

[Chris]

This stuff is over-analyzed and under-understood.

Yes, most people don't understand budget vs. trade deficits but it really doesn't have to be as complicated as some want to make it. It's like one of those things where anyone can carve out a piece of the math and make statements based on that piece alone but disregarding the whole picture is the fluff.

At the end of the day you have to produce more than you consume. If it gets complicated that's the part that needs focus. In a materialistic society that consumes, if it doesn't produce that economy will ultimately collapse. That's the highway we're on right now.

Everything else is window dressing.

I think Trump understands this too and I think he's wielding our clout to get back onto that track. But it's a big hill with China and their production and while growing consumption they are more focused socio-economically than we are in this sense from a standard of living stance.

What's the long run prospect? Economically? Our political system isn't structured to focus on long run prospects, it favors short-term political gains.

So many areas to delve into here but at the end of the day the crash is coming. It's inevitable.

You be the one who's overanalyzing and under-understanding it. Lots of extraneous fluff having nothing to do with the topic: Trade deficits. And, no, Trump does not understand it economically, he's just good at using misunderstandings politically. And then you drift off into lala land trying to sound knowledgable, asking an economic question and giving a political answer. And oh yea the crash.

The OP was quite simple: Trade deficits are not fiscal deficits. Trade deficits grow in a growing economy and shrink in a falling one. Using tariffs to combat trade deficits only makes things worse.

IMO, Trump is gambling the American people can stand more economic pain--higher costs--than the Chinese. It's a risky gamble.

[Peter1469]

I don't have a problem with trade deficits per se. Economically they are a good, not bad thing.

But with specific products, mainly national defense products, materials, components, we really need to supply that stuff ourselves. But, like the OP points out, that is not an economic issue, but a political issue.

[Chris]

I don't have a problem with trade deficits per se. Economically they are a good, not bad thing.

But with specific products, mainly national defense products, materials, components, we really need to supply that stuff ourselves. But, like the OP points out, that is not an economic issue, but a political issue.

Yes, there are political--national defense arguments--for keeping manufacture and supply of some goods in country. There's a trade off in cost involved in making those decisions. I think people would support that.