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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.'"
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?
Karma Whoring for Fun and Profit.
...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.
Too many of the US' imports are coming from abroad.
I vote in EVERY election in my precint. I vote against ALL incumbants and against any additional spending. I am doing my part. I think when the dollar finally collapses people will get a clue that deindustrializing along with de-educating our kids was a really bad idea. I am not sure if our Government fully appreciates the impact of a bunch of pissed-off gun-owning "peasants." Shrub never read the history around Viet Nam and wonderfully repeated it. I bet he knows even less about European history...regarding uprisings, inserection and revolutions, etc.
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
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
The World Wide Web is dying. Soon, we shall have only the Internet.
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?
Blar.
The US declared bankruptcy on the 15th of August 1971.
Nobody noticed or seemed to care. Which I have to admit I find a touch odd. But... at the same time, in 1972 and 1973 they managed to persuade the House of Saudi to denominate oil in US dollars so everyone had to buy dollars to buy oil. Perhaps you'll start to understand the close relationship between the US and Saudi now.
This genius has allowed the US to export it's inflation to the rest of the world for decades. It may have been desperation or genius, but whoever it was that thought it up should be given the highest medal by the US government and people. It's given the US a truly massive advantage over all of the other countries.
Of course, 40 years later, everyone is starting to wake up to the importance of currency, and the oil producers are starting to switch away from the US dollar as it's value dwindles.
"A nation-state taxes its own citizens, while an empire taxes other nation-states."
And inflation is just another form of taxation.
Brilliant.
Deleted
Computers are useless. They can only give you answers.
-- Pablo Picasso
What explains the US net income balance?
d a nking
http://www.bis.org/publ/work223.pdf
And a great mystery for the uninitated.
http://en.wikipedia.org/wiki/Federal_Reserve_Boar
http://en.wikipedia.org/wiki/Fractional-reserve_b
http://en.wikipedia.org/wiki/Money_multiplier
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!
Quidquid latine dictum sit, altum sonatur.
...
Talk of "trade deficits" is political manipulation designed to bamboozle the uninformed. Anyone who believes "deficits" result from trade is as gullible as the Emperor's New Clothes. Do you even understand what's being discussed here? TFA is saying that in the electronics sector, we are buying more than we are selling. It has nothing to do with 1-to-1 business transactions.
My country buys 10 billion [currency] worth of widgets from your country
Your country buys 5 billion [currency] worth of widgets from mine
My country has a trade deficit of 5 billion [currency] in the widget sector.
It's imports vs exports.
When imports do not = exports, you have an imbalance.
For your nonsensical post to be correct, we would have to be buying and selling widgets in equal quantities. Hint: we aren't.
I really can't understand how anyone moderated you up.
This stuff isn't that hard.
[Fuck Beta]
o0t!
From TFA
"U.S. technology product imports exceeded exports for the first time in 2002 starting a trend that left a $38.3 billion trade deficit in 2006 after reaching a high of $44.4 billion in 2005."
So it actually went down.
Also
"in 2006, the United States continued to export considerably more than it imported in two technology areas: aerospace and electronics."
Oh, the horror.
I only go to buffets for the unlimited soft serve.
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.
The more you regulate a company, the worse its products become.
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.
http://www.iribnews.ir/Full_en.asp?news_id=234177& n=33
Deleted
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.
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.
If moderation could change anything, it would be illegal.
you're an idiot. If we only bought american goods, then we'd inflate our local prices, and foreign companies would kick the crap out of us abroad, and we wouldn't have anyone able to compete. Then instead of losing SOME money to them, we'd have whole companies go out of business. You weren't paying attention in economics class where you. It might sound nice to say 'buy american' but if we really did that, and boycott foreign stuff, you'd drive the price on american shit up so much there would be no way in hell anyone but americans would buy american, and foreign business is what keeps a LOT of companies afloat.
Speak for yourself.
In case anyone's wondering what he's talking about...
If we only bought american goods, then we'd inflate our local prices,
Thus increasing the wages of American Workers, which would in turn allow us to afford those higher local prices, and encourage production of goods here at home to keep us safe from foreign wars and governments.
and foreign companies would kick the crap out of us abroad,
Only if you're stupid enough to tie your business to a foreign market instead of creating goods for your own nation's people ONLY. We've got 300 million people who, to maintain their standard of living, need the same amount of goods as 1.2 billion third worlders. What kind of loser needs to sell to the third worlders with a market like that here at home?
and we wouldn't have anyone able to compete.
This makes no sense. Why compete for small third world markets when cooperation to use the larger first world market can bring larger rewards?
Then instead of losing SOME money to them, we'd have whole companies go out of business.
Only the non-patriotic treasonous ones- which should go out of business anyway.
You weren't paying attention in economics class where you. It might sound nice to say 'buy american' but if we really did that, and boycott foreign stuff, you'd drive the price on american shit up so much there would be no way in hell anyone but americans would buy american, and foreign business is what keeps a LOT of companies afloat.
Those companies, I call them free traitors, deserve to go out of business if they're too stupid to be able to stay in business with this big of a market. And yes- we're at the point where we've got such an incredibly high standard of living in comparison to everybody else that we either need to produce it all ourselves for ourselves while waiting for the rest of the world to catch up, or we need to go through a depression to reduce our standard of living. A BUY AMERICAN campaign will achieve both.
SJW: a person who perceives an injustice, and while correcting it, commits a greater injustice.
- None can love freedom heartily, but good men; the rest love not freedom, but license. -- John Milton
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.
When that money leaves the country it leaves in Dollars, other countries may trade that currency, but eventually they are still U.S. dollars and have to come back into the U.S. The majority of these end up buying treasury bonds. China is now the biggest holder of treasury bonds. They own our asses... and our children's.
The solution (or at least part of the solution) is a very libertarian one: stop the growth of government, stop the congressional borrow and spend cycle, stop printing money and bonds. Bonds are a tax on the future.
Our trading partners buy bonds because they have dollars they've gotten from the stuff we've bought from them. They are a fairly safe investment and gives them a good return. If bonds were not so easily available they'd HAVE to spend that money in real investments in the U.S. The money that is now going to fund the growth of government would instead go to fund investment and economic growth
Trade imbalances aren't bad on their own, it all depends on what you do with the imbalance, if you use it to fuel Government they are terrible (look at the Latin American Economies of the 80's and what they did with the inflow of foreign currency in the form of loans, same effect). Use them to fund growth and trade imbalances are not a problem.
Basic Macroeconomics, cxu ne?
But they can't use that U.S. currency to purchase things in France, or to purchase things in the UK, or to purchase things in Japan, unless they find a bank that will be willing to trade them a corresponding amount of those currencies... and to do that, there have to be people in France, or the UK, or Japan, who want to buy U.S. goods and so are willing to trade their own currency for U.S. dollars.
There is no gold standard... The dollar isn't backed by any commodity. The only value that the U.S. dollar has is that it can be used to purchase U.S. goods. For every dollar the U.S. spends on foreign goods, those foreign traders need to spend a dollar on U.S. goods (or on U.S. stocks or bonds or property). I don't think you have any idea how international trade actually works. This from someone who thinks the U.S. is still on the gold standard and wants to emulate the trade policies of Cuba.
So we fork over $49.95 for a CD player. ... ...
That is the essence of trade.
So where is the "deficit"? We have fewer pieces of green paper, but that's okay, we got something better in exchange.
Where did your piece of green paper come from?
Did the government just print it out of thin air for you? If so, then it has no value, and no one will accept it in the future. Your currency will crash and you will have massive inflation. Soon, your $50 will not even buy you a stick of gum from an overseas producer. Why would they accept it when it means nothing?
Did you take a loan to get it? If so, then you are going deeper and deeper into debt, and sooner or later, you wont be able to borrow any more. Who will lend to you when you have no ability to pay them back?
The deficit is that you didn't sell $50 worth of materials to create that $50 that you used to buy materials.
Those exporting countries are willing sit on trillion+ dollar reserves because oil typically hasn't been available for import with any currency other than US dollars. Cutting a deal with Saudi Arabia (the OPEC swing producer) to price oil only in dollars in exchange for propping up their oppressive dictatorship, has caused the rest of OPEC to fall in line... at least until 2000 when Iraq switched from the dollar to trading oil exclusively in euros.
In other words, there was an artificially-maintained relationship between oil and the US dollar, creating great demand for our currency and causing the world to subsidize the lavish/wasteful lifestyles of so many Americans. The more oil gets pumped to third parties, the more demand there is for greenbacks, and the more we can print up over here to send abroad in exchange for real goods and services.
The oil-backed dollar is sometimes called the 'petrodollar'.
Since 2000 Iran, Russia and Venezuela have started trading in euros as well and as of last month Iran has thrown down the gauntlet and excluded the dollar. Last month was also when China decided to start spending/investing that pile of dollars (their first investment fund, with more to follow, is $300bn.).
I read through a few of the posts here, and I think some of the posters are not experts in econ despite their claims.
Although I'm not an economist, I am interested in the topic and have read some books about it.
Some facts accepted by all trade economists:
1. When the United States has a "trade deficit", it means that foreigners are buying US bonds (typically treasuries), or are increasing their reserves of dollars. (If you count selling bonds and sending currency as exports then the trade deficit is always 0).
2.At some point in the future, foreigners will want their money back or will want to spend their dollar reserves, at which point the US will have to export more than it imports. Then the trade deficit will run the other way. There is no chance of other countries "cutting out" the US, because that would mean they sent us products and lent us money while getting nothing in return.
3. The trade deficit increases the standard of living for Americans in the short term. It means that we can buy more things at Wal-Mart and other places than we otherwise could. It does not affect our overall unemployment rate. The only problem with the trade deficit is that it can't be extended indefinitely, which means that at some point we will have to export more than we import, which will be unfortunate for us.
4. Although China accounts for a larger share of the trade deficit than any other single country, it accounts for much less than Europe and Japan combined.
5. The reason Europe and Japan export things to the US is because they want to pay for imports from the US, either now or in the future.
6. The trade deficit by itself is not necessarily a problem. The only problem is if there's a "hard landing" which means that Europe, Japan, and China demand their money back more quickly than the US economy can adjust, which would harm all parties.
First off... did you have a brainfart, or are you actually advocating USA ISOLATIONISM, on all fronts, economic, political and military ?!?
You know it can never work nowadays, do you ?
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.
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).
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.
By reading this signature you agree to not disagree with the post you just read.
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