General Question

LostInParadise's avatar

How is it possible for the U.S. to have a trade deficit with all other countries?

Asked by LostInParadise (28990points) June 10th, 2018

If people aren’t buying American goods then the demand for the dollar should be low, causing its value on the foreign exchanges to go down, making foreign goods more expensive and countering the deficits. Why hasn’t that happened?

Also, why aren’t countries upset to have trade surpluses? Their companies are selling some of their goods to the U.S. instead of their own citizens, without their citizens getting compensatory goods from the U.S.

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7 Answers

elbanditoroso's avatar

What’s the old adage about lies, damn lies, and statistics? Deficits and trade balances are a lot like that – you can fool with the numbers to prove just about anything, whether it’s empirically true or not. It has a lot to do with the what is considered trade, what is considered an expenditure, and so on.

The US is largely a rich country. Lots of people with a lot of disposable income. So it’s entirely possible that the US is paying out more to other countries than we are taking in., But that’s a symptom – that’s not the real problem.

There are two underlying problems:

1) the US doesn’t do its own manufacturing any more. We have farmed it out to a hundred other countries. Time was that anything you bought was Made in USA – but companies moved their manufacturing plants everywhere else for cost reasons (didn’t want to pay US salaries) so everything is an import. That move took 50 years, and it is kicking us in the ass right now.

2. What the US does still manufacture is not wanted by other countries. Yes, there is some manufacturing done here – but foreign countries don’t want, for cultural, pricing, or other reasons. The US manufactures, largely, for a US market, and our consumer needs aren’t what the rest of the world wants. So we’re trying to sell stuff they don’t need.

But to directly respond to your question – @LostInParadise – the foreign trade numbers you read and hear about are jiggered and screwed with to make a political point. They are about as true as anything else Trump has said.

zenvelo's avatar

The trade deficit is off set by foreign investment in the US. The one trillion in debt the treasury will be issuing this year is financed by dollars held overseas, mostly by China.

That is why getting angry with trade partners is foolish. Make the Chinese mad enough and they will stop by US 30 year notes.

Jeruba's avatar

@zenvelothey will stop by”—does this mean “they will stop buying”?

stanleybmanly's avatar

There is also the indispensable fact that the dollar is the world’s reference currency allowing us alone to print money at will. If the world ever finds a way to shift away from the dollar, our standard of living will plummet to that of Latvia.

zenvelo's avatar

@Jeruba yes, should be buying, not by. Autocorrect got me once again.

gorillapaws's avatar

Foreign investments and the total net foreign trade deficit/surplus will always total 0. It’s just a fact of Macroeconomics—at least that’s how I learned it. Remember that while the demand for the US dollar will decrease from people buying fewer US goods, it’s also in demand for people converting their currency into dollars to invest in US markets.

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