Tax Cut To Widen Trade Gap That Riles Trump

Jul 2009
512
69
#22
BigLeRoy, USA's great chronic international trade deficits are as you state, due to our nation consuming more products than we produce. I disagree with your statement, “U.S. invests more than it saves, while other countries save more than they invest”. If our nation saved more, we'd be investing more. The low interest rates are not due to an excess of savings available to fund investments. They are due to the federal reserve board's decision to print more dollars in an attempt to heat up our economy.

The purchase and sales of stock certificates are just transfers of wealth. Real investment, (as opposed to consuming) is the net purchase or creation of goods and services contributing to our current and future increasing net production of more goods and service products.

Respectfully, Supposn
 
Likes: 1 person
Oct 2014
31,074
5,491
C-A-N-A-D-A-Eh
#23
Seems one of those that, he's trying to heat up the economy at home, which would hopefully expand what can be traded out to offset.

Why is that incorrect?
 
Jan 2016
51,655
47,878
Colorado
#24
Seems one of those that, he's trying to heat up the economy at home, which would hopefully expand what can be traded out to offset.

Why is that incorrect?
If he 'heats up the economy at home', this would mean a couple of things that are, in fact, already happening:

(1) American consumers start spending more. And indeed they are. A link I posted here not too long ago had the title "Americans Are Spending Like Mad"----I'll go try to find it again in a moment or two. And of course when American consumers are spending more, a LOT of that spending will go on imports, goods from other countries. Of course, that makes the trade deficit LARGER.

(2) The dollar tends to get stronger. And indeed, the dollar has strengthened considerably against most other currencies this year (despite weakening a bit this past week). A stronger dollar makes those imports even cheaper; and it also makes our exports more expensive for foreigners in other countries. So foreigners buy FEWER of our goods, meaning we export LESS, not more.

(3) Also, Mr. Trump is heating up the economy in large part by making the budget deficit MUCH larger; he is FISCALLY stimulating the economy. And there is a direct linkage between the budget deficit and the trade deficit, which is explained in the OP. As the budget deficit grows, so will the trade deficit.

This all means that Mr. Trump's OWN policies are making the trade deficit LARGER. We will likely see a trillion dollar trade deficit next year, for the first time ever in American history. I bet THAT will get a LOT of talk.

Libertine is correct that the trade deficit tends to rise when America becomes more prosperous. The trade deficit SHRANK rather dramatically during the Great Recession of 2007-2009; world TRADE shrank dramatically during those years. What I have been trying to get him to realize----for the better part of three years now----is that this means Donald Trump's promises on the campaign trail were utterly contradictory. He CANNOT both make America more prosperous and 'fix' the trade deficit, all at the same time.

EDIT: Here's the link on Consumer Spending:

http://money.cnn.com/2018/06/14/news/economy/retail-sales-consumer-spending/index.html
 
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Likes: 1 person
Jul 2009
512
69
#25
... Libertine is correct that the trade deficit tends to rise when America becomes more prosperous. The trade deficit SHRANK rather dramatically during the Great Recession of 2007-2009; world TRADE shrank dramatically during those years. What I have been trying to get him to realize----for the better part of three years now----is that this means Donald Trump's promises on the campaign trail were utterly contradictory. He CANNOT both make America more prosperous and 'fix' the trade deficit, all at the same time. ...
BigLeyRoy, Libertine is incorrect; he's confused with what are causes or effects.

USA domestic markets' sales volumes increase when our economy is more robust; (i.e. when our GDP per capita is increasing), and of course sales sluggish sales volumes accompany a more lethargic economy. Both imported and domestic products are sold within USA's domestic markets and their sales proportions are dependent upon the characteristics of individual products.

Trade deficits are ALWAYS,(i.e. In both robust or poorer economic conditions) net detrimental to their nation's GDP.
Refer to politicalhotwire.com/economics/195483-trade-balances-economic-importance.html
and to politicalhotwire.com/economics/195452-trade-deficits-indicate-nation-consumed-more-than-produced.html

Respectfully, Supposn
 
Jul 2009
512
69
#26
BigLeyRoy and Libertine, I'm a proponent of a trade policy superior to pure free-trade or tariffs; as described within Wikipedia's “Import Certificates” article.

I am not a Trump supporter but reducing our chronic annual trade deficits while not reducing our GDP is certainly economically feasible and desirable.
I'm a proponent of the “most favored nation” concept which does not prohibit nations from favoring their own entities, but each mutually agreeing nation does not treat each other more or less favorably than their treatment of entities from any other nation foreign to them.

I believe it's foolish to levy tariffs on steel from selected, rather than upon steel producers from all nations and it's additionally foolish to levy tariffs upon steel producers products but not upon other products to the extents that they're composed of steel materials or components which include steel.
USA producers of products requiring steel materials, (i.e. the expected “natural” customers for USA produced steel) are thus put at greater disadvantages to competing foreign producers.

Respectfully, Supposn
 

Blueneck

Former Staff
Jun 2007
53,794
40,295
Ohio
#27
On Thursday, April 19 (2018), an article with that title appeared on page A2 of The Wall Street Journal, in the weekly Capital Account column by the very knowledgeable Greg Ip. His columns are highly recommended, BTW. I would link to the article, but you would run into an immediate paywall. A few brief excerpts:

Among President Trump's most deeply held convictions is that trade deficits are bad, yet his signature economic policy---a major tax cut---likely will deepen the trade deficits for years to come.

But in the long run wider trade deficits will make Americans poorer. That's not because foreigners are stealing American jobs, as Mr. Trump often contends. Rather, it's because Americans will increasingly borrow from foreigners to sustain their standard of living. Paying them back will wipe out a sizable chunk of the tax cut's benefit.

The U.S. runs a trade deficit because it consumes more than it produces while its trading partners, collectively, do the opposite. (Another way of saying this is that the U.S. invests more than it saves, while other countries save more than they invest.)

Permanently reducing the U.S. trade deficit requires some combination of the U.S. saving more and other countries saving less, a tall order because saving is heavily driven by structural factors such as aging, the social safety net and the availability of credit......Permanently higher budget deficits make trade deficits worse by diminishing national saving. Larry Kudlow, Mr. Trump's chief economic adviser, in an interview with The Wall Street Journal, disputed the link between the budget and trade deficits. But economists at Goldman Sachs recently studied the historical record and found that all else equal, every $100 boost to the budget deficit raises the trade deficit by $35.
Maybe it would have made more sense to not give tax breaks to companies who have their products made overseas.
 
Apr 2018
10,013
2,488
oregon
#28
I don't think a trade deficit in and of itself is a bad thing. It reflects the US citizens' choices. I do think unequal tarrifs are bad. If another country wants to tarrif our exports at 10%, then we should be able to respond in kind. IMO, the only real grey area is when other countries' governments are subsidizing their industries and the effects of near-slave labor on the pricing of goods.
 
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Jul 2009
512
69
#29
BigLeyRoy, Libertine is incorrect; he's confused with what are causes or effects.

USA domestic markets' sales volumes increase when our economy is more robust; (i.e. when our GDP per capita is increasing), and of course sales sluggish sales volumes accompany a more lethargic economy. Both imported and domestic products are sold within USA's domestic markets and their sales proportions are dependent upon the characteristics of individual products.

Trade deficits are ALWAYS,(i.e. In both robust or poorer economic conditions) net detrimental to their nation's GDP.
Refer to politicalhotwire.com/economics/195483-trade-balances-economic-importance.html
and to politicalhotwire.com/economics/195452-trade-deficits-indicate-nation-consumed-more-than-produced.html ...
I don't think a trade deficit in and of itself is a bad thing. It reflects the US citizens' choices. I do think unequal tarrifs are bad. If another country wants to tarrif our exports at 10%, then we should be able to respond in kind. IMO, the only real grey area is when other countries' governments are subsidizing their industries and the effects of near-slave labor on the pricing of goods.
OrangeCat, the only "grey area" are imports of tools and materials that directly support USA's production of products. Such imports are less, but certainly are also net detrimental to their nation's gross volumes of domestic production, (i.e. GDP) and such imports are not among the primary causes of USA's chronic annual trade deficits.

Respectfully, Supposn
 
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Blueneck

Former Staff
Jun 2007
53,794
40,295
Ohio
#30
I don't think a trade deficit in and of itself is a bad thing. It reflects the US citizens' choices. I do think unequal tarrifs are bad. If another country wants to tarrif our exports at 10%, then we should be able to respond in kind. IMO, the only real grey area is when other countries' governments are subsidizing their industries and the effects of near-slave labor on the pricing of goods.
I think it's telling that many of the goods on the list of tariffs imposed by the Chinese are subsidized.
 

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