Another US Tech Trade Deficit

eldavojohn writes "The United States is suffering again from a massive trade deficit — $38.3 billion in 2006. And it's been going on since 2002. From the press release: 'In 2006, Asia supplied 60 percent of all US imports of advanced technology products. Europe supplied more than 20 percent, and North America more than 15 percent.'"

Comments

How long

[downix]

When a country exports all of it's facilities, manufacturing, and infastructure overseas, how long before that countries trading partners realize that they can cut the country out of the loop entirely?

Re:How long

[MontyApollo]

The US is a huge consumer. They can't cut us out all the way.

Re:How long

[BrianRoach]

You see this all the time now with Chinese produced goods. They copy whatever it is they were manufacturing for American company X, then produce it for themselves and ship it into the US. Basically, all they need is someone in the US to handle sales and distribution (Walmart, for example).

- Roach

Re:How long

[downix]

And with what money shall the US consume if it does not manufacture anything to sell for profit? Technology was the last real growth manufacturing field. Without turning one thing into another, to sell for profit, there is no more real consumption as rather than generating money, you are just recycling money. And then, when you buy foreign made goods, that recycled money leaves the country, leaving you with less to purchase with. It is an entropic cycle, and will eventually fail.

Re:How long

[Ohreally_factor]

they need better brands and more of a retail channel. They'll be looking to acquire that. coughcoughLenovocough

The main problem for the U.S. is that wages are relatively high, while they are low in these rapidly developing countries. And we're apparently on a generally downward spiral while they're on a generally upward spiral. The competition you mention is going to keep wages in these countries from rising quickly, so the "floor" is going to be lower, and workers in the U.S. are going to be in for some long term pain.

There are a lot of other factors involved, such as the lack of effective regulation (for product safety, working conditions, environmental issues, etc.) that play into this in complicated ways. But the bottom line is that we're in for some belt tightening here in the U.S., barring some major technological breakthrough.

Re:How long

[Bluesman]

They can't if they care about their economy.

But what if they don't care? The Chinese don't have a history of being enamored of the global free market. They might be willing to cut of their nose to spite their face, especially if their new middle class gets too uppity for the party's taste.

Our massive debt that the Chinese control means that they could sink their economy and ours with a single move. It's like a financial nuclear bomb, only the Chinese have the only trigger.

I'm all for globalism, but the massive amount of debt the U.S. government is creating isn't going to go away, and there will be consequences eventually.

Re:How long

[Anonymous Coward]

"And with what money shall the US consume if it does not manufacture anything to sell for profit?"

The US shall pay with freshly printed US dollars. You could ask why other counties should accept freshly printed US dollars. The reason is that the other countries will buy oil with that. You could ask why these other countries would not pay in their own currency. The reason is that they can't which is caused by a deal between US and the Saudis that forbids the Saudis (and others) to sell oil in other currencies. As a side remark: the attack on the Iraq coincides with their trying to sell oil for Euro in the oil for food program. Generally weapons of mass distruction are found in oil exploiting countries that try to sell their oil in other currencies than freshly printed US dollars.
It is a great concept.

Re:How long

[aldousd666]

england seems to be doing alright. what do they export? deficit doesn't mean 'debt' in case those of you hadn't caught on yet. All it means is we import more than we export. It is not a disaster. It's not even necessarily bad.

Re:How long

[RexRhino]

LOL, and many of those "US" products the Europeans are buying were produced in China. None. Most of those tech products European are buying from the U.S. are software, biotech and pharmaceuticals, aerospace technology, industrial electronics and robotics, etc., things that China doesn't export.

China exports low cost consumer electronics, such as DVD players. That is because the cost of labor is the biggest single cost of consumer electronics. However, the cost of labor on a 787 is negligible, the cost of labor on an industrial CNC mill is negligible, the cost of labor on Adobe InDesign in negligible, the cost of labor on the newest cancer drugs are negligible.

Europe buys their consumer electronics directly from China as well. That includes so-called "European" brands such as Nokia, which are mostly manifactured in China, India, or the less developed eastern european countries where labor is cheap, such as Romania.

Re:How long

[drsquare]

The British economy is almost entirely based on debt. It's not a good example to follow. We have millions of people employed by the government doing non-jobs, their wages paid by private finance-initiatives, which means jobs otherwise done by the public sector are done by the private sector, at much higher cost and much less efficiency, but it looks good on the books as the cost can be deferred for twenty years, by which time all the current politicians will have retired and won't have to deal with it. Millions of people in Britain are buying things they can't afford on credit cards. It's a huge ticking time-bomb waiting to explode.

Our 'sceptred' isle is overpopulated, millions of pensioners unable to work, but Gordon Brown has raped the pension fund, so we need millions of immigrants just to make ends meet. Once the supply of cheap labour runs out, the shit is going to hit the fan.

In fact I'd say that Britain is the world's biggest pyramid scheme.

The US is lucky that the US-$ is a global currency

[Anonymous Coward]

This way, everybody else chips in when the US has to devalue its currency to pay the debt.

If this keeps on...

[dtjohnson]

...we'll end up living in huts made of logs and sod, driving pushcarts full of firewood, and eating soybeans. Seriously, doesn't 'trade' mean an 'exchange' of goods and services? Obviously, the exchange is not happening, just a transfer of currency.

Re:Lots of trade defecits!

[Magnus Pym]

If you abstract out enough, all you need is to eat, shit and sleep.

In practice, things are not that simple.

Have you any idea how much the dollar is falling w.r.t. international currencies? The pound is more than 2 dollars now. Do you know what the implications of this are?

Hint: In the short term, a weak dollar might help local manufacturers, but it will devastate the middle class because inflation will follow shortly.

Magnus

Well, yeah....

[FooAtWFU]

It shouldn't be the least bit surprising to anyone that we import our electronics from overseas. It's also not surprising or even necessarily bad that we have a trade deficit. We're the rich country, and we're spending money on buying stuff. And it's not like global trade is a zero-sum game; we remain pretty darned capable of generating wealth ourselves, and indeed can do so far more effectively than manufacturing a bunch of cheap electronic parts.

Yay, so the markets are hiccuping because people didn't understand the risk associated with the debt securities they were buying. let's get scared about the trade deficit by posting scary-looking numbers when most people don't understand any of the concepts behind them, oooooooooooooooooh. scary! :P

Re:Lots of trade defecits!

[Anonymous Coward]

If trade deficits were an issue, then the above trade deficits would also be an issue for you personally.

Except that your example can be made a closed loop: I sell labor to the farm, the farm sells goods to the distributor, the distributor sells goods to the grocer, the grocer sells goods to me, and I continue to sell my labor to the farm.

What are we selling to the Chinese? If they have no reason to use US dollars to buy things, why should they continue to accept US dollars?

Why?

[FatSean]

Why is it in their best interest to send money through the USA when we don't make much of what they want to buy, and we can't afford to buy what they sell?

Re:Why?

[aldousd666]

so you're saying that if someone loses their high paying manufacturing job, then they can't go do something else ever? not even 20 years from now? It's a local hiccup to lose a local industry to foreign competition, it doesn't make the next generation (next 4 year class of college students even) of workers immune to finding jobs. It's those high paying jobs anyway that make American companies unable to compete with foreign companies who don't pay them as much. So you're basically saying that we should somehow tell the other countries that they have to be fair and pay them as much as we'd like to make, because.. it's only fair that way... right? I don't think they'll buy it. And you will be left behind whining about how life isn't fair, while the people who adapt will be moving on buying more plasma screen tv's they shouldn't be able to afford.

Re:Why?

[Marxist Hacker 42]

No, it does NOT mean comparative advantage rules have broken down. Believe it or not, us buying more abroad just means that our money is worth more to foreigners than the objects they are selling, and the objects we are buying are worth more to us than the money being shelled out. That is all.

That's all if you are only thinking in the short term. But in the long term, this destroys our manufacturing industry to the point that we can't afford to keep paying Americans a high enough wage to have houses, let alone buy foreign crap.

Buying things abroad increases the nations overall wealth.

Or at least that's the religious myth they keep spouting at us with no real data whatsoever. Overall wealth means NOTHING- how much space you have between the poorest and the wealthiest counts for EVERYTHING, at least as far as national security counts, because the wider that spread the higher chance you have of violent revolution.

Re:Why?

[aldousd666]

you don't have a 'right to a job' you have to right to apply for a job. if nobody wants to pay your for your services, learn some new services. nobody 'took our jobs away' they simply outperformed us for a lower price. I'm not talking about quality necessarily, that's another issue, and it varies as well. People go to work and get paid because someone feels the need for their services, and that it's worth forking out the cash for said service instead of, for example, doing it themselves. You don't get a paycheck because someone wants to give you a job, you get a paycheck because you can do something someone feels is worth paying you for. If someone else does it for a lower price, then quit your bitching and do one of two things: find another job doing the same thing somewhere else, or, learn to do something else and do that. Like I said, industries, especially in particular geographical areas, but eventually as a whole, go completely out of business eventually when we have machines or other products to replace them. So, in accepting the fact that we don't live in a stagnant society, and that nobody is going to just walk up and start paying you for producing nothing (services included), you should really quit bitching about 'poor people who don't have jobs,' and start thinking of 'how can we find useful services for these folks to perform.' Notice that's not the same thing as forcing someone (or the government) to pay them to do what they feel like doing, it's repurposing some good resources -- the people who need the jobs. If all of the sudden computers could write all of their own code, I'd be fucked too, but I'm well aware of that, and I'm ready to accept the risk, so I seek employment as a programmer. You're not going to ever find something that's just right and sit on it for enternity, it'll just keep moving, like the rest of the planet.

Re:No such thing as a Trade Deficit

[lawpoop]

By definition of trade, something is given away and something is received in exchange. That would be true if, for example, the US and China were trading material goods in exchange for material goods, but international trade is the exchange of material goods for paper money. It's starting to appear to me that this fractional reserve currency is basically a shell game, or musical chairs, and every so often the system crashes, with winners and losers. So it may actually be a problem if you have an actual material trade imbalance in order to play a shell game. And China is starting to look like it's holding the chips in this round of the game.

Re:No such thing as a Trade Deficit

[spicate]

Also, trade only occurs because that which is received is valued more than that which is given away in exchange. Thus, both parties *profit* from every instance of trade, at the moment of trade. By your logic, no one ever is on the losing end of a trade. Reality is full of counter examples. You're making the implicit assumption that people (or businesses) are perfectly rational actors with complete knowledge. They aren't - see the last 50 years or research in the social sciences.

There is no deficit whatsoever that occurs from any single instance of trade, even if that trade involves promises to repay at a future time. Just to give you one example of how this is wrong... Material goods may depreciate at a different (faster?) rate than currency does. So if I give you cash for a car, that car will be worth at lot less in 5 years than the value I paid for it. You can't assume that somehow the use of that car balances out the difference, because the car depreciates EVEN IF YOU DON'T USE IT. New, better cars are on the market, and people buy those cars instead of your older model. Thus, people lose money in the trade... it happens all the time. If you borrowed to make your purchase in the first place, then you are doubly screwed.

economics on Slashdot

[syrinx]

I can tell that this will be a useful discussion. Once I'm finished reading the insightful and intelligent posts here, I think I'll go to the blog of The Economist or the Wall Street Journal and ask them about the latest Ubuntu release!

Maybe there's a reason ...

[LaughingCoder]

Tell me another country whose government routinely punishes their most successful companies (AT&T, IBM, Microsoft) while at the same time spending billions to prop up failing companies (Chrysler). This is backwards behavior that naturally leads to trade deficits. What surprises me is how the US government does not smarten up and notice everyone else laughing at us.

Trade Deficit: So What

[TonyXL]

Would you rather the US have:
a) Jobs where things like iPods and iPhones are conceived from ingenuity, designed, and perfected (ie, the way things are now) OR
b) Jobs where things like iPods and iPhones are assembled

The fact that our economy and employment are pretty strong proves that the trade deficit is meaningless.

Re:Oil is sold for dollars.

[Colin Smith]

http://www.iribnews.ir/Full_en.asp?news_id=234177& n=33

Re:Lots of trade defecits!

[Ajehals]

Minor problem with that theory.

Firstly the Us sends them dollars, they need dollars to buy oil, so they sell the US things in exchange for dollars which they exchange for oil. The oil producers then have lots of Dollars and are happy, they buy things from all over the world in dollars (because everyone needs dollars for oil).

The problem arises when the dollar becomes less stable and loses value, at that point the oil producers either take a hit and make less profits, increase the price of oil (which means people want dollars even more badly and may increase the dollars value thus solving the problem in the short term, but pushes up process of anything that needs transporting or oil in some other way...) or they can switch to a more stable currency.

If they switch to a more stable currency then the dollar sinks, the global economy takes a huge hit, but when the dust settles, the US is in a bad way because no one wants dollars anymore, as are all these countries that peg their currency to the dollar and whoever replaced the dollar as the currency of choice is sitting pretty.

People don't swap goods for useless paper, they swap goods for paper that they feel will get them the things that they need, the moment that stops that paper really does become worthless and no one will want it, bad news if you need to buy things from abroad because you don't have a manufacturing base anymore and no one wants to buy your services.

Re:No such thing as a Trade Deficit

[Bluesman]

You are completely right as far as your economic analysis.

But what's truly worrying is not that we have a trade deficit, which isn't necessarily bad. What bothers people are the political implications of other countries owning massive quantities of the U.S. public debt. The real cause of this is the U.S. government inflating its currency to pay for expensive political projects and favors (like, say, wars, subsidies, social security, and medicare prescriptions); the trade deficit only exacerbates the problem.

The largest hidden tax on U.S. citizens is inflation of the dollar, but we really don't see it beyond 4 or 5 percent because other countries until now have highly valued the U.S. dollar, keeping dollars and treasury bills as a stable reserve currency.

Our government is spending money like it's going out of style, and they're just printing more dollars to pay for a lot of it. The Chinese hold enough of the U.S. debt that they could sell off their dollar reserve and create a global "run on the bank" as every country in the world tries to sell off the dollars they hold in reserve before the selling price hits rock bottom.

At that point, you'd see the value of the dollar cut in half or more overnight, and there would be massive panic and depression. The point is, there is NOTHING we could do to stop this. The Chinese hold all the cards in this scenario. The fact that the U.S. government let this happen is a complete abrogation of responsibility on their part. Should we find ourselves in a small recession and tax revenue drops, causing the government to devalue the currency enough that the Chinese want out, a small recession could turn into a huge depression.

Now, will this happen? That depends. Do you think the U.S. government will reign in spending, save social security by severely cutting benefits, tell people that universal health care is an economic impossibility in our current condition, eliminate the prescription drug plan, and remove all agricultural subsidies and not start any wars?

Or will they continue spending as they have been and pretend nothing's wrong so long as they get elected, while their financial advisors are buying gold, real-estate, and bullets in record numbers?

I'm betting on #2.

Imminent decline

[amightywind]

When a country exports all of it's facilities, manufacturing, and infastructure overseas, how long before that countries trading partners realize that they can cut the country out of the loop entirely?

When you learn of such a country please tell us about it. The U.S. runs a large trade deficit because developing economies tend to be net exporters and lift the U.S. standard of living by providing cheap goods. It also runs a deficit because many nations (Japan, China, some Euro countries) have a strong demand for safe U.S. treasuries and seek to protect their own export industries. The huge U.S. consumer economy is still a unique market in the world. Low U.S. inflation since the Reagan era has made these a particularly good deal for both parties. Higher inflation or a weaker dollar will likely end the practice as export profits look for better opportunities. The U.S. is an intensely competitive economy. It isn't perfect, but I laugh at you naysayers who predict its imminent decline. During the Bush administration the U.S. economic growth has exceeded the entire size of the Chinese economy. Judge the U.S. by how badly foreigners want to get in here. A few weeks ago they pulled some Chinese guy from the landing gear well of a 747, freeze dried. Too bad, we could use people with guts like that.

Re:Correction Requested

[Marxist Hacker 42]

First off... did you have a brainfart, or are you actually advocating USA ISOLATIONISM, on all fronts, economic, political and military ?!?

I've actually been advocating that since 9-11-2001.

You know it can never work nowadays, do you ?

Depends on how you define "work". It'll probably hurt a lot. It will most certainly lose us the top 1% of our income earners- but then again I consider them to be useless parasites anyway. It will mean the loss of materialism. But we will survive, and that's all that counts.

Not that I wouldn't just love to see the USA shut the hell up already and keep its nose out of other people's bussiness, work out internal issues first... but that will and could never happend.

The only reason we're ever in anybody else's business is because of the trade to begin with. We have everything we need in our 50 states- there's no need for anything more.

Second... fiat currency is insignificant compared to the "virtual money" in circulation nowadays, at least 90% of today's "money" doesn't actually exist at all (with a pessimistic estimate of up to 98% of it being virtual money... yes, that's one "real, paper dollar" out every 50 in "circulation" in the worst case scenario, or one out of 10 in the best case scenario).

Same difference- I say go back to gold.

And government has zero fucking control over it, because it declined it in favor of the banking industry, just like most countries on this stupid planet. I'd really love to see a "bank run" in the world of today, with the banking system's bubble burst wide open to its rotten core all across the globe, governments forced to make banking a state issue rather than a private one.

Actually, four times in the last 200 years the US Government has taken it over.

Trade Deficit and Currency

[Ignatius]

As a European, it I amazes me how many slashdotters seem to live in a complete state of denial, even going as far as to claim that "Trade Defcit" is an artificial and meaningless term - it is not! Unlike many other figures like the official GNP (which includes positions like "good will" and and other magic) or the official (hedonic) inflation rate, or the unemployment rate (determined by a telephone poll), the trade deficit is a very solid and easy to understand thing: the value of (real, tangible) goods and servicies going in minus the value of products going out.

If you buy more stuff than you sell, then you have a net flow of dollars out. Whoever receives these dollars can do one of 3 things: (1) use the dollars (directly or indirectly) to buy US products, (2) lend the dollars back to the US (US bonds, treasury bills), expecting to get even more dollars back, or (3) buy stuff in the US (stocks, equity, real estate), again in the hope to make even more dollars from his investment. Since, for one reason or another, the US economy fails to offer enough products anyone outside the US wants to buy (1) (hence the trade deficit), we're taking about debt (2) and sell-out (3).

A "normal" country wouldn't be able to do this for very long; as he would quickly (a) have its currecy devalued (if you have nothing to sell, no one outside needs your currency), (b) run out lenders (most countries dont have the luxury to indept itself abroad in their own currency to begin with) and (c) local assets to sell. Depending on whether you do or do not fire up the printing press you either end up in bancruptcy or hyperinflation.

A super power like the US which is able to strongarm or otherwise convince the producers of some key commodities to trade exclusively in their own currency, can get away with it considerably longer as their are alway products to buy for dollars (most prominently oil) even if those are not made in the USA by US labour. This gives the dollar the liquidity which is necessary so that it even makes sense to lend back dollars to the US (instead of demanding real goods right away).

It is even more helpful, if you can convice some producers of said key commodities (as e.g. Saudi Arabia), to set a good example by putting most of the money into US treasury bills and US assets (petro dollar recycling), as this postpones inflation and the devaluation of the dollar which in turn allows to keep the interest rates in a sane range as long as those bills are kept in the vault and are constantly renewed.

Of course, not even the US can live on credit alone, eventually the lenders will want something "tangible", and if you cannot or don't want to provide goods, at least you can provide them "assets". Of course, there is only so much you can sell, so the trick is to invent more things to sell (e.g. "intellecual property") and to inflate the prices of existing investments. Since the inflation is in assets and not in consumer goods, this is not called inflation but a "boom" (after all, inverstors want prices to rise) before and a "bubble" after people realize that a high price dose not imply a sound and profitable investment (as happend in the dot-com crash and is happening right now in the real estate and mortage sector).

You can, as some in this thread do, consider this a good thing for the US, after all, it basically means converting paper into Mercedes' and BMWs, and they would be correct if this games can be played infinitely - if you happen to be in the group that actually profits (that is, if you work in or close to the finance sector - if you're a production worker, well, too bad - maybe you can get a job as buttler or bodguard by those with better luck). Then it would make sense to deindutrialize your country and neither do you need an efficient education system as the rest of the world is supplying you with consumer goods basically for free.

It won't work infinitely, though. The non-US world sits on an ever increasing pile of trillions of dollars in US-dept and overvalued assets. Ever