Res Ipsa wrote:cinepro wrote:That's fantastic. If we got $566 billion worth of stuff sent to us and we didn't have to send anything back other than "money" (which isn't actually a service or resource, but is a promise for future value), then we came out way ahead.
We are totally winning this trade thing.
And did Trump ever explain why he thinks trade should be "balanced" between any two countries? No one thinks "trade" between two people or companies or states needs to be "balanced." That's the whole reason we have money. I go to the grocery store and instead of having balanced trade with them, I take their food and give them money, and then they take my money and use it to trade with someone else.
That's the piece of this I really don't understand. Although I was never big on the Chicago School types, I thought Milton Friedman explained this concept very clearly: when we give someone a little stuff and get a whole bunch of stuff back, we're winning. It's not that hard to understand.
Doesn't Trump have any economic advisers that can explain to him that his understanding of trade deficits is exactly backwards? That the notion of winning he uses in real estate transactions (coming out with the most money) doesn't apply to international trade?
Trade Deficits Don't Matter - And Today's Foolish Idea To Deal With ThemIt is a standard part of just the usual standard economics that trade deficits do not matter. We have Adam Smith telling us that nothing is more ridiculous than concerns about the balance of trade--and we should note that near all of modern economics is either footnotes to Smith or wrong. But even within this economics tells us further that bilateral trade deficits really do not matter at all. Even if we allow, just for the sake of argument, that America should export around and about as much as it imports (not true but recall, we're doing this just for the sake of argument) it is entirely irrelevant that trade is balanced with each and every country.
Imagine that the US bought $300 billion's worth from China more than it sold to China--and sold $300 billion's worth more to Iran than it bought from China, Iran then selling $300 billion more to China than it buys? In this three party system everyone has balanced trade overall--what would be the problem of the unbalanced bilateral trade? It's even possible, just about, to see that tripartite model working too. Boeings go from the US to Iran, oil from Iran to China and electronic tchotchke from China to the US. Even if we were to worry about trade deficits these bilateral imbalances would not matter one whit nor iota.
Which brings us to the latest proposal about trade deficits, one of the sillier ones we've seen recently:
The U.S. urgently needs a plan that will mitigate future long-term trade and budget deficits, an overall blueprint where everyone is better off, including our trading partners. Therefore, I propose that when the U.S. runs a trade deficit with any country for five years, an automatic import limit comes into play in the sixth year, mandating a reduction in the trade deficit with that specific country by 20%. A 10% increase in U.S. exports and a 10% decrease in imports relative to that country would fit the bill, but either way, an additional 20% annually mandated reduction in the trade deficit would continue for four more years until trade is balanced. Then, the law would go into hibernation for five years, allowing free trade with that country to resume. No tariffs, just a country-specific trade-deficit limit to act as a current-account safety mechanism to reduce the dangers of de-industrialization.
That is quite obviously fetishising those bilateral trade imbalances which do not matter that one whit nor iota So, we can safely reject the proposition as is.
Don Boudreaux reads the Riot Act on the basic misunderstandings of trade of this proposal here.
An even more egregious misunderstanding is revealed in Mr. Berlage’s proposal to impose stiff taxes on American consumers who purchase imports from any country with which America runs persistent bilateral trade deficits. Yet in a world of more than two countries, bilateral trade deficits are utterly without economic significance.
In this real world of ours with nearly 200 different countries, most of which are woven together into a single global economy, there is no more reason to expect that we Americans will over time sell as much to the Chinese as we buy from the Chinese than there is to expect that, say, General Motors will over time sell as much to Goodyear as General Motors buys from Goodyear. And just as General Motors would be foolish to restrict its purchases from Goodyear on the grounds that Goodyear annually spends less on outputs sold by G.M. than G.M. spends on outputs sold by Goodyear, it would be foolish for us Americans to restrict our purchases of outputs sold by the Chinese on the grounds that the Chinese annually spend less on outputs sold by us than we spend on outputs sold by the Chinese.
Mr. Berlage’s poor understanding of both the reality and the economics of trade make him unfit to be taken seriously on this matter.
Entirely so but we should also go one step further (I take this point from Professor Boudreaux earlier, I am sure it is not made here only for reasons of tedium, it being tedious to continually have to school on the same point). The insistence is that government mandates a reduction in the trade imbalance. But how?
It is not governments that trade with each other nor even is it countries. It is people who trade with each other and that remains true whether we are talking about domestic or international trade. How are we to mandate this 20% reduction? We have inspectors at Walmart who, come September, would be warning us that we must buy 20% less of Chinese manufactures by year end? My decision to purchase a shirt made in Charlotte or Calcutta must be determined by whether I have part of my individual quota for Indian goods left over?
And as to the exports, we've only one (in two episodes to be sure) historical example of a government forcing foreigners to purchase our goods. And the Opium Wars are not looked upon as a great example of statecraft.