Using a national currency as the de facto global reserve guarantees a trade deficit for that country.
No one else can manufacture USD's, so other countries have to acquire them by shaping their economies to supply goods and services demanded by the US. They can then use these earned dollars to transact with other countries, as the US itself insists they do.
For the US, this is a simple trade off - gain massive political influence (and market intelligence - all USD transactions go through US institutions regardless of where those transacting partners are located), at the expense of hollowing out domestic industry and running a deficit in physical goods traded.
The solution is a non-national global reserve, calculated on a basket of national currencies. This was Keynes argument at Bretton Woods, but the US would not have it then, and does not want it now.
I assume that the New York Fed would like Americans to be more patriotic, save more, and buy less cheap imported crap, that's why they wrote this article in this way. But it skates past a few key issues.
1. Consumption doesn't zero out, because domestic consumption in the USA is mostly spent in China, not in the USA. That is what contributes to the trade deficit, not lack of saving.
2. Asset price inflation contributes hugely to the money supply. Where is this in this equation? It's not saving, it's not investment, it's not consumption, it's mind boggling amount of money created from nothing. That asset price inflation is the true source of wealth creation and money supply growth, not bond sales, quantitative easing, or whatever.
3. Domestic saving is in no way equivalent to productive investment in the US economy. Are people keeping money in their mattress considered accounting discrepancies? Companies hoard cash like dragons. What investment in USA? Have you seen much new equipment or new factories? What investment means here is pumping up USA asset prices, it stretches the definition of the word investment to the absolute limit. Domestic saving just ends up as unused savings in an account somewhere, we don't have a good mechanism to put it to actual productive use.
4. The true role of the Federal Reserve is to stabilize and increase asset prices. Money can be easily created by stimulating asset price growth.
5. Funds from abroad don't finance business investment in USA. Investment is a very nice way to put it. They are foreign funds snapping up American real estate and other hard assets. Investment somewhat implies it will lead to economic benefits. Foreign ownership of American assets, companies and real estate is what "investment" means. It doesn't mean growth, it means shrinkage, I think the foreign owned assets tend to lose their value.
The author seems to gloss over the economy not being a zero sum game.
As an example, since this is HN: the US creates a ton of startups. Any country that creates new businesses is going to see foreign investment, which on paper leads to a trade deficit. Essentially, the US exports businesses to the rest of the world, but that is not tallied in a 19th century model for the trade balance of goods. However, it's arguably a better export that commoditized goods, from a margin standpoint.
Overall these graphs change dramatically based on where the exact geographic boundaries are set and how one defines goods/services/investment. Clearly the US hasn't run out of cash and needed to massively print dollars to cover foreign debt, which would happen very quickly if the system were actually imbalanced.
> The author seems to gloss over the economy not being a zero sum game.
The current incumbent of the WH seems to think two things:
1) all games are zero sum games
2) he has authority to sack or functionally wreck any institution he likes without legal recourse.
I would expect in the light of 2) it's possible people write as if 1) is being respected.
This is a common soundbite and an unfair simplification. Non zero sum games often still have winners and losers. Also a positive sum trade deal for both sides does not mean it is the best trade deal.
"best" is highly subjective. It certainly might not deliver the highest dollar value across the exchange.
The reason for this highly unfair soundbite is that most international trade treaty processes are designed NOT to favour one economy over the others and use "most favoured nation" language to try and put equity on the table. Thats before the US enters the room: My reading online in years past says that every economy which did the TPP said it did better overall when the US walked away from that deal.
Trump and his negotiators are not remotely interested in fixing problems globally, they're fixing their own vision of internal problems. A 10% across the board impost on goods coming in is frankly ludicrous, and the lack of awareness about how VAT/GST models work for importers and exporters in Europe and like economies is pretty stunning: In no way does VAT impose a burden on US incoming goods. it's neutral to all sources. Yet, Trump and his negotiators want to pretend they don't know that.
I'm not an economist or a game theoretician. I'm fine with you correcting my simplified language, but I do not think it was unfairly applied to the current political situation. I'm a simpleton shouting about another simpleton: the one who thinks the only negotiation worth doing is one he "wins" in and for him, winning definitionally means somebody has to lose.
Capital investment are potential future negative outflows. They do not replace exports (goods and services). That is unless these investments are a scam (ahem), investors are probably expecting a yield in the future and to retrieve their investment. Movement of capital will be good if it was balanced, but it is not: https://en.wikipedia.org/wiki/Net_international_investment_p...
The US runs a NIIP of negative $27 Trillion. This is a consequence of the trade deficit as the deficit is being financed mainly with this money.
Actually since the qe to fix 2008 foreign investors/governments cut down on bond buying. Treasury has foreign bond holdings up about 2T since 2014 and current account deficits sum to around 7T.
Nowadays we're mostly selling companies and real estate. (though there was a nice jump in bond buying a few years when rates went up)
Exporting business ownership when seen on a national level is just another form of debt. You're trading future production for stuff now.
The fundamental problem is that the balance of goods flows into the US today. If debts and profits are going to be paid out eventually that will have to reverse. But it's going to be politically impossible for the US to ever send out 5-10% of its GDP in goods. That's the fundamental problem.
You've fallen into the exact zero sum thinking trap that the parent comment mentioned. If investment causes the overall pie to be bigger, then both sides win with no tradeoff.
> If debts and profits are going to be paid out eventually that will have to reverse.
No it absolutely won't. The US exports financialization and technology services which don't show up on a trade deficit chart but do materially make the US and the world richer.
> You've fallen into the exact zero sum thinking trap that the parent comment mentioned. If investment causes the overall pie to be bigger, then both sides win with no tradeoff.
The economy is _not_ a zero-sum game. The world economy is _not_ a zero-sum game. Trade very much _is_ a zero-sum game because all the exports of all the countries have to be equal imports in the others -- worldwide imports and exports must net to zero. GP's point, if I understood it -and idk if it's correct-, is that to pay off our debt we'll have to export more than we import, but that the rest of the world will not allow that. The part of GP's argument that sounds like "zero-sum games" is about world trade, and world trade is zero-sum even though the world economy is not zero-sum.
? Trade is zero sum over what time with what metric?
Or maybe a lot of it can't deliver returns in line with the current price. The world realizes that and stops sending us stuff for those investments. Then we're stuck with limited manufacturing, high inflation and relatively low ownership of our existing high value exports.
If the pie gets bigger too slowly then I think we still lose.
(1) Perception is reality. The pie might be bigger and the US might be better off but that's not what people will act on.
(2) Foreign debt is growing faster than the pie. It's an unsustainable situation. Debt as a percent of GDP has gone from 10% in 2000 to 30% today.
If I buy an apple from an orchard with money, I haven’t indebted myself an apple man. I got a real product for effectively an iou that everyone pretends has value and that orchard can trade to someone else for fertilizer. You have the entire concept backwards.
There was another reply here earlier that was saying it isn't a trade deficit. I wanted to steelman the parent post:
Foreign investment into USA companies reduces the USA trade deficit but it isn't tracked in traditional methods.
I've heard that foreign investment in real estate generally isn't counted as each country owns properties equally between the two, so it nets out. I wonder if investments into companies is the same?
It is tracked! there are a few different numbers.
by the BEA: https://fred.stlouisfed.org/graph/?g=gX0f
by the treasury: https://ticdata.treasury.gov/resource-center/data-chart-cent...
It's a little hard to figure out how important it is, but there are "good" numbers.
> Foreign investment into USA companies reduces the USA trade deficit
Other way. Foreign investment doesn’t touch the trade account but the capital account. When the company the foreign investor invested in buys stuff, that alters the trade balance depending on what they buy from whom.
Other countries federal reserves like to diversify into other currencies to help guard against hyperinflation. And the dollar is stable as currencies go, so people are happy enough to buy T bills but now there are a bunch of say Kronors the US government doesn’t know what to do with, so let’s buy some oil, fish, and steel to get it back where it’s going without fucking with the exchange rate.
The author is talking about nominal-value market aggregates that always add up to 0, by construction, without alternative.
The article is literally explaining why the US runs a deficit, and economic growth isn't really a part of that explanation.
[flagged]
(your comment reminds me of Monty Python's argument skit...)
I am merely pointing out that the article, as written, glosses over an interesting an important detail.
It's not a zero sum game over the long term, but at any moment it certainly is. At any moment there is a certain amount of money and generally it gets redistributed to the wealthy. So it's mostly zero sum. Yes the pie grows over time but the distribution gets worse over time. We call this inequality and it's growing.
>However, it's arguably a better export that commoditized goods, from a margin standpoint.
Importantly, this is the same dynamic that causes economies to move away from manufacturing towards service-oriented economies. Capitalism is going to chase higher margins, but there should be guardrails that mitigate the negative externalities of such behavior. Else we are left with an eroded middle class, lack of supply chain resilience, disproportionate costs for sectors that can’t chase geo-arbitrage, weakened national security manufacturing capacity, etc.
The US is manufacturing more than ever and is the second largest manufacturer in the world after China. The US middle class has actually "eroded" upwards -- our wealthiest population cohort has tripled in the last thirty years.
That’s what the data shows until you peel back the covers and understand that nothing at all could be manufactured here at all without enormous imports of not just raw materials but partially completed goods. US manufacturing output looks large economically because it’s mostly final assembly of imported partially completed goods, but if you looked at the value added (manufacturing output minus imports) it would be much smaller than other countries like China which own entire supply chains.
Because we can't actually make the strategic products. You might have a factory to assemble the highly strategic fighter jet in the US but it is problematic if you are dependent on foreign countries to source or manufacture the multitude of parts.
Counterpoint: We aren’t necessarily manufacturing the things that contribute to national security in the same way we were after WW2. The DoD has listed lost manufacturing capacity as a major risk.
And I think you’ll need to elaborate more on your point about the middle class. Depending on how you measure it, people can move from middle class into upper class, but also into lower classes. Your post acts as if class mobility is only in one direction. A bifurcated distribution supports the point that the middle class is eroding.
By dollar value, but not by actual amount of manufacturing. When you peel back the US's real GDP growth, it just turns out prices rose faster than inflation.
A significant portion of the trade deficit is due to heavily discounted Canadian crude imports that American oil refineries refine and resell domestically and internationally at a large markup that brings in massive revenues.
American lobbying has to date successfully prevented Canada from building up its refinery capacity. Now that Trump doesn't seem to like this arrangement, Canada will likely simply stary refining its own crude.
This will definitely reduce the US trade deficit but may not be good overall for the American economy.
The blanket generalization that all trade deficits are subsidies is flat out wrong. You need to look into the details to determine whether a given trade arrangement is beneficial for the US or not.
No. The US will win the next world war by replying on its advanced capabilities in restaurant work and business consulting.
The US will withhold their advertisements until they capitulate.
You joke, but wars are won on logistics. Famously, the US military can deploy a Burger King anywhere on Earth within 24 hours.
No, in order to win a war, it must have a clear objective which can be successful. The US is terrible at this because the objectives of war by a democratic country will be set by politicians, who've never seen an objective which couldn't be made vaguer. Operation Iraqi Freedom had so many sub-objectives key military leadership didn't even agree what the goals all were - and even then some of those goals are nonsense, predicated upon false narratives spread by politicians who wanted a war and needed some sort of justification. Remember the Weapons of Mass Destruction your army was sent to find? Never existed. Terrorists they were sent to eliminate? More were created than had existed previously.
Battles may be won on logistics but you can't win a war without a clear and achievable objective. Corporate had a clear objective. Overlord had a clear objective. Take Desert Shield, to give an example of a US-led operation with clear objectives. If you turn up and the Iraqis all say "Fuck this, I'm off home" freeing Kuwait that's success. If you kill half the Iraqi population but they're still occupying Kuwait when your funding runs out that's failure. That's what you need if you want to win a war, clear objectives.
Which was part of the rationale for supporting Ukraine: the best way to build up a manufacturing base is if you have customers, and so supplying munitions to Ukraine was a win/win/win from the military's point of view: Ukraine gets ammo, the US gets to ramp up domestic military production with, effectively, someone else paying the bill. (Granted, some of that was US funds, so the 'someone else' was often another part of the US government, but the point stands in terms of manufacturing capacity.)
While there are shortages in some areas, I'm not aware of any reports of across-the-board procurement issues. In 2023 there was a shortage of 155mm artillery shells (at a production rate of ~8000/month), but no shortage of small arms ammo, APCs, or tactical vehicles [1]. By February 2025 the US was "manufacturing 30,000 155mm rounds per month" and "the Army is now “on a path” to producing 70,000 to 80,000 rounds per month by the end of 2024 or early 2025" [2].
That might not be enough to sustain a conflict with China if it started today, but it does demonstrate that the US is perfectly capable of scaling up domestic arms manufacturing if they choose to invest in it.
[1] https://www.csis.org/analysis/rebuilding-us-inventories-six-...
[2] https://www.nationaldefensemagazine.org/articles/2024/9/11/a...
A sustained conflict with a nuclear power is a no go. The risk of nuclear escalation is too great.
The US military used to be good at logistics. Is it still?
> weakened national security manufacturing capacity,
What products specifically would be a national security concern? The CHIPS act was passed to revitalize semiconductor manufacturing because we rely heavily on Taiwan. From my understanding, we already have a lot of domestic manufacturers for various parts, who are too expensive for the average American but are the main suppliers to the DoD.
As mentioned in another post, the DoD lists lack of manufacturing capabilities as a growing risk. There are many small batch parts that the US could manufacture, but companies aren’t interested. There are also those items which they no longer have the capacity to make, or deliver. Ted Koppel’s book Lights Out gives examples of long lead time items that can’t be made in the US and we also lack the ability to deliver them because the necessary infrastructure is no longer there
> Clearly the US hasn't run out of cash and needed to massively print dollars to cover foreign debt
Foreign debt is skyrocketing, with interest payments alone already becoming unworkable. Five or ten more years of this spells disaster, it’s totally unsustainable.
Either something very drastic has to change, or that money printer will have to go into overdrive.
We could just massively tax the rich?
Only if you find a way to tax the rich in other countries.
Taxing the US rich redistributes money within the country while the problem (or a perceived problem, depending on your stance) is that US bleeds money across the board.
> Why does the U.S. always run a trade deficit?
For the same reason why I run a trade deficit with my barber and my grocery store.
“deficits are also due to a persistent shortfall in domestic saving that requires funds from abroad to finance domestic investment spending.”
But why isn’t it: deficits are due to a persistent surplus in funds from abroad to finance domestic investment, perhaps because the economy produces high returns and welcomes foreign investment?
> Finally, achieving the goal of a smaller trade deficit will likely be painful
While true, this is economics in a bottle. A world war would also "likely be painful", and one would require factories on-shore and a devalued currency to improve ones odds. In a perfectly peaceful and massive and stable vacuum-world, being the global reserve currency and running a trade deficit and "raising the economy’s productive capacity" is much better than the alternative. Things aren't so simple.
What do you import, and from whom? Are your now unemployed working-class political benign or politically violent? Is your productive capacity capable of producing ships and missiles? Sure ad revenue is great, but can it intercept ICBMs?
If all goods are widgets and we're discussing economics without politics, this is completely spot-on. Alas...
Answer: because "trade deficit" is a 19th century concept that is no longer a complete view into how the modern international financial system works
> The saving gap framework helps clarify what trade policies can and can’t do. For example, a free-trade agreement encourages exports, and an industrial policy can foster a re-shoring of production to replace imports. Such policies influence the size and composition of cross-border trade, but the difference between imports and exports is only affected if these policies also change the gap between domestic saving and investment spending.
Is there research on the link between the availability of cheap foreign goods and domestic saving and investment? E.g. would people invest more domestically if they could obtain returns making domestically manufactured goods? Doesn’t the availability of cheap Chinese goods arguably suppress domestic investment? E.g. Apple investing tens of billions into its Chinese supply chain.
I’d also be curious why the EU doesn’t consistently run trade deficits.
> why the EU doesn’t consistently run trade deficits.
It’s because, comparatively, the EU doesn’t run as massive fiscal deficits, nor is the EUR the primary reserve currency.
Keep in mind that what the fed article is calling a “saving gap” is really more of a fiscal gap that been plugged by US Treasuries.
> Keep in mind that what the fed article is calling a “saving gap” is really more of a fiscal gap that been plugged by US Treasuries.
They're two sides of the same coin, but the levers of control and causality aren't symmetric.
In particular, the US government doesn't have direct control over the savings behaviour of anybody, especially not of people outside the US.
That's why most policies that aim to reduce the US government deficit are bound to either fail or have undesirable negative effect elsewhere.
More precisely it’s because the EU has no fiscal unified fiscal policy. Every member is a currency user of a foreign currency it must acquire from the ECB.
Wynne Godley explained this all nicely in Maastricht and All That.
> I’d also be curious why the EU doesn’t consistently run trade deficits.
Some EU countries probably do, but because they are smaller economies it seems less critical. Combining the EU economies can hide a Spanish deficit within the German surplus fairly easily. e.g. the German surplus are 10 times higher than the Spanish deficit (if I recall correctly).
The EU viewed as a whole, I don't know, maybe due to a very diverse economy, lower overall consumption, lower EU salaries?
See answer above - the EU is less "debt-fueled".
But I also think that EU producers are more competitive. The US has a strong tendency towards local monopolies which are bad for export competitiveness.
"The US has a strong tendency towards local monopolies"
also the problem is US is one of the largest market in the world, if you can conquer US market. you can pretty much do that elsewhere
essentially monopolize an entire world
How many countries are US fast food franchises in?
Music? Movies? Bleed over from US social media?
There's something to that, I think.
A country that exports goods to the US earns dollars that can be invested in the US. So, one way to look at it is that American consumer spending funds foreign investment in the US. This consumer spending could alternatively fund US exports, but doesn’t if foreigners prefer to buy US investments. (They might buy Apple stock, for example.)
If Americans spent less and invested more, they might own more of these investments themselves, but they also wouldn’t have as much stuff, and foreigners wouldn’t have as much money to invest in the US.
If iphones were charged with US labor costs then nobody would buy them
Or we would have automated assembly faster—the investment in which would’ve been counted in domestic investment offsetting the trade deficit, right? I’m trying to verify my mental model of what’s going on.
The future the USA could have had, sigh: "A brief history of Steve Jobs’ automated factory at NeXT" https://www.cultofmac.com/news/a-brief-history-of-steve-jobs... "Put simply, there was never any necessity for NeXT to have an automated factory. Jobs might have been right that the future of just-in-time manufacturing would involve a heavy dose of automation, but it made no financial sense whatsoever to have a plant staffed with the latest robots for such a low volume business. The problem with NeXT came down to one thing: no-one (relatively speaking) was buying the computers."
the assumption being that the automated assembly is going to be price competitive with the manual assembly. If this is the case, why doesn't it happen with the chinese supply chain? After all, there's no reason not to make it cheaper.
The only conclusion you can draw is that the automated assembly will still be more expensive compared to the current manual one.
> why doesn't it happen with the chinese supply chain
There are already "dark factories" that don't require light or heating because they are fully automated and don't require human presence.
Guess where they are? China.
It does happen in the chinese supply chain; it's already heavily automated. It's a bit late to try to undercut them using automation.
Americans will not accept the quality-of-life sacrifice of their labor being competitive with Asia. It's never happening. The only way US manufacturing will be competitive with China's is if it is 100% automated from the mines to the store shelves.
Are you arguing that if something hasn't been invented/adopted yet, then it will never be? Because IIRC the Chinese do invest into attempts to automate the phone assembly. It may not yet be price-competitive today but why not tomorrow?
Or it would mean the time and cost for tooling would be prohibitive to annual releases, as they would need to sell each refresh for longer.
Like car manufacturing where the models are more consistent each year with longer cycles to refresh.
I honestly don’t see that as a big issue. It may even be better.
OK lets assume the entire chain is automated and you don't need to employ anyone.
The factory can go anywhere, in China, in France, in California, in North Dakota.
What benefit is that to the average American citizen?
So the company owning that factory moves it to Iceland or Ireland or India who don't tax it.
Or you could bypass all that and simply tax Apple now, despite their factory being in China.
Proximity to suppliers could be a factor..
If we have magic machines that produce everything soup to nuts, you don’t see why it benefits us to have those in america rather than in China?
You'd need to site it near to the Grand Forks air force base (almost Minnesota) because that's the only runway in state capable of handling 747 cargo flights.
"I’m trying to verify my mental model of what’s going on."
Why not try to improve it?
Higher end Motorolas were mfg in the US in the early 2000s. It’s possible. Top of the line were ~$700, with inflation that’d afford iPhones. They were top sellers and not niche models.
Higher end Nokias were also 100% made in Finland, even the chargers. Companies just wanted that sweet Chinese labor.
I’ve no idea why people downvote the above claims.
Here from the Verge: https://www.theverge.com/2013/9/11/4717796/made-in-america-a...
As late as 2014 phones were being made in the US. I believe Nokia in Finland was similar…
Maybe the military could just start forcing people to buy all US made products instead of just our currency?
Trust me they are exploring this
That's what the UK was doing before WW1, when private army (including warships) from a private British company attacked places like Guangzhou, before the UK government forced their terms of trade on China.
History doesn't repeat itself, but it rhymes.
iPhones are already heavily overpiced considering how other companies regularly release phones with similar specs at lower prices.
Let’s be honest, no one is releasing phone with “similar” specs… https://browser.geekbench.com/mobile-benchmarks
Functionality sure maybe but competitors are not hot on apples heels or anything.
Being honest, Geekbench 6 Single/Multi results vary depending on source and can be picked to fit different narratives.
S M
iPhone 16 Pro Max 3331 8106
Samsung S25 Ultra 3137 9769 [1]
A18 Pro 3582 9089
Snapdragon 8-E 3155 9723 [2]
A18 Pro 3452 8572 [parent link]
S25 Ultra missing [parent link]
SM-S938U 2k-3k 9k+ [3]
[2] https://nanoreview.net/en/soc-list/rating
[3] https://browser.geekbench.com/search?utf8=%E2%9C%93&q=samsun...
[4] https://browser.geekbench.com/search?utf8=%E2%9C%93&q=Apple+...
iPhones also used to be carrier subsidized. I remember getting a new one for $200 - $300 thanks to AT&T.
Whether you pay $40 a month to apple for 2 years and $10 a month for your contract, or $50 a month for a contract for 2 years with a "free" phone, doesn't change anything (other than being locked into the airtime contract needlessly)
There are some good deals out there where you basically get a free phone. However, I've also seen ones adding another $20 - $40 to your monthly bill for the duration of the contract.
"If iphones were charged with US labor costs then nobody would buy them"
idk, people pay premium for avocado sandwich
a lof of cali folks certainly would do that
For most people who aren't very wealthy there is a huge difference between something making their $10 sandwich become a $20 sandwich and something making their $1000 phone become a $2000 phone.
Also, people are generally more flexible with sandwiches. If the $10 sandwich I have once a week goes to $20 I might respond be switching to having that sandwich every other week and get something else on the alternate weeks.
That won't work for a phone because I generally replace my phones when the old phone is no longer adequate.
If I'm buying 3 sandwiches a week most weeks of the year (or similar eating out) that's like 150 meals a year. Adding an extra $10 to that is $1,500.
I might get a new phone every 2-3 years. A $1,000 increase in my phone cost is $333-500/yr on average. And honestly if they jump $1,000 I'll probably try even harder to stretch it out another year or more.
A $10 sandwich going to $20 is probably going to be far more impactful to my budget than a phone going up $1,000 in price.
"Saving" in the accounting identity is just money not spent on consumption. Cheaper imports can increase domestic saving because people now spend less for the same goods. That could then increase domestic investment due to the increased savings.
Or the same situation could reduce savings, if people increasing consumption because the imports are so cheap.
The accounting identity doesn't explain anything other than the mathematical truth that the money needs to add up in the end. Savings are not inherently good, deficits are not inherently bad
https://www.federalreserve.gov/boarddocs/speeches/2005/20050...
The Global Saving Glut hypothesis by Bern Bernanke is an interesting argument about how the glut of demand for US financial assets may have been the major factor in creating the housing bubble in 2008.
Empires have perverse incentives to be extractive and monopoly building.. and its war and conflict and resulting elite exchange/ land redistribution that rearranges the lottery once more.
Services aren't added in the equation. With services, like Netflix, Office365, etc, the US runs a trade surplus.
There are several comments in here claiming that is something that trump said but doesn't hold up in real numbers
it's the New York Fed. they are not making that mistake.
This is incredibly well written.
The oil example is very compelling for import substitution. And the covid example is interesting in showing the savings rate only went up as an offset of gov spending.
I'd love to see a follow up on (a) is it important for the US to increase domestic savings and (b) what are the best policies to do so, and why are they the best?
I imagine blanket tariffs might actually increase the savings rate because they increase the cost of importing all goods when the domestic alternatives are either inferior or more expensive. But I'm curious if they are the best way to achieve the savings goal.
The only policy that will increase savings rate is a stable or depreciating currency. People are incentivized to use an inflationary currency so they can maintain value.
But they can spend it on stocks, with the hope of maintaining or increasing value. Thats savings, right?
Who doesn't love the value of their savings being built 100% on the speculation of the public perception of made up things?
An underrated fact. The only savings that doesn't decay is someone else's debt, too.
If only there was some material that didn't degrade over time and is hard to produce. Somebody should invent something like that.
(a) There's an argument that people should save more for retirement, but I haven't heard anything more than that about why domestic savings as a whole has to increase. If anything, this is quite a good place to naturally run a deficit! Good rule of law and investment opportunities, as well as future earnings from migrants.
(b) Targeting the fiscal deficit usually works well, especially because it's particularly yawning right now. Forced savings (sing-style CPF) work ok too though, although only Singaporeans wouldn't consider that a tax.
> only Singaporeans wouldn't consider that a tax
Both forced savings and taxes are legally mandated by the government, but that does not mean that forced savings are taxes. Implementation details matter.
Your money in your own CPF account accumulates interest (at decent/attractive interest rates that generally exceed inflation rates), and is then paid out tax-free to you after retirement.
Additionally CPF funds are managed separately from the government's consolidated revenue. They are administered by the CPF Board and are not used for government expenses in its yearly budget.
Because there is a fiscal deficit which requires borrowing, which means that new money is created. If the new money were spent only in the USA it would cause prices to go up a lot, so the money goes overseas so that the price increases are more moderate (arbitrage). Why is there a fiscal deficit? Because politicians want to win elections. If the fiscal deficit were ended then mathematically there could not be a trade deficit.
if this is zero sum-ish then who is the counterparty that’s getting screwed and how?
Economies are not zero-sum games. World trade _is_ a zero-sum game (all exports and all imports worldwide must net out to zero).
Trade deficit sounds bad, but it’s not always a problem. Other countries sell us stuff, then use the dollars to buy U.S. assets. It’s like we get goods, they get a savings account.
This. A trade deficit is a goods and services surplus. People are sending you shit for free. What's not to like about that? Well, it's unsustainable, so you should have a backup plan, but while it lasts it's pretty good. It's the singular reason the USA is the richest country, and the new regime wants to stop it.
In return you have to give them money, but you can just print that. It costs nothing to get.
You can also just confiscate it. If Trump was really worried about other countries having too many dollars, he could set their balances to zero with the stroke of a pen. They wouldn't trade with him any more after that, of course, and might even launch nukes. But hey, Nixon confiscated the world's gold and got away with it.
Can someone clear up if "services" are included.
I read quite often claims that state if services were included, the US would be in a trade surplus.
But in my own rudimentary research, it appears services are in fact included.
Can someone confirm.
They are included. The US typically runs a trade deficit in goods and a surplus in services, but it can change [0].
0: https://tradingeconomics.com/united-states/balance-of-trade/...
Yes it includes services and we still run a deficit. Trump's definition though does exclude services which leads to the confusion. In services on its own we run a surplus but it doesn't make up for the larger goods deficit
The Trade Balance definition is murky depending on who you ask, it's better to use the Current Account Balance that includes trade balance amongst other things as an indicator of net flows. The Current Account does explicitly include goods & services, and the US is running a hefty deficit today.
> Using national accounting, one can show deficits are also due to a persistent shortfall in domestic saving that requires funds from abroad to finance domestic investment spending.
But which is the cause, and which is the effect?
The cause is persistent shortfall in domestic saving and the effect is using abroad dollars to finance spending.
The cause starts from both micro agents secularly deciding to spend more than save and from the government making law large deficits (a large source of not saving).
Dark matter in the American trade balance
https://www.gmexconsulting.com/cms/de/dunkle-materie-in-der-...
Translation: https://www-gmexconsulting-com.translate.goog/cms/de/dunkle-...
I think this model is useful on a theoretical level, but I think the fundamental relationship being made is backwards. Domestic savings being weak is an outcome, not an input.
Trading partners want to sell us goods for no more than our money. If we have nothing they want to buy, then the result will be a surplus of US currency out there. Parking it in US assets drives the cost of debt way down for the US, and the low rates disincentivize domestic savings.
You put forth a bit of a broken model, if there's a surplus of currency abroad we should see our currency depreciate, but instead it's quite strong and has been for a very long time, even as we run persistent, large deficits.
That's exactly true if it was really a surplus. But as it seems foreigner markets are pretty happy with the quantity of dollars out there
It’s amazing how everybody misses the wood for the trees.
Where else is China et al going to sell all the stuff they can produce via their physical overinvestment that was driven by the “export led growth” mantra?
There is no untapped source of demand anywhere in the world. There isn’t the income. All they could do is produce less and cause their economies of scale to go into reverse.
So instead they sell stuff for accounting entries, which are then used on the asset side of their currency area balance sheet to justify issuing more of their own currency and maintain the circulation.
They could, of course, just buy the time currently used for producing excess exports and maintain the circulation in any case. But that would cause lots of people who are hard of accounting to get very upset.
So instead they continue with financial mercantilism, allowing everybody there to pretend that they are productively engaged, not metaphorically digging holes and filling them back in again.
And that would continue, thanks to those nations supplying the accounting entries and receiving all that nice output, but for somebody getting elected on the US side who actually believes the “lack of saving” line and decided to do something about it. To the loss of the US people.
Quite why he think that saying the US isn’t paying enough for Canadian lumber or Chinese cars is good for anybody is beyond me.
Another win for the Emperors New Clothes.
> There isn’t the income
There's always the real income, the probably is usually just the price rigidity! Most rich economies have no problem with this (the US and the EU can just adjust interest rates, which are comfortably above zero, to accommodate trade balances). Ironically, China is the biggest culprit here: their interest rates are way, way too high given their inflation and unemployment. This is unfortunate, it'd cause a lot less political disturbance if they lowered it, but as a practical economic matter, not a concern to the US / EU. Drop trade barriers, lower interest rates, and everyone will be richer and have a job.
There can’t be or China et al wouldn’t be selling their stuff for mere promises.
People don’t swap bananas for apples. They sell them for money, and money is retained for its own benefit. Failing to treat money as its own exchange product is the problem.
The world is not run by interest rates. It’s run by monetary flow, retained in its own right for insurance, status and mercantile purposes.
> There can’t be or China et al wouldn’t be selling their stuff for mere promises.
But they are, since those aren't capitalist democracies China can do things that doesn't benefit its people short term but continues to move investments and industries there long term.
> There is no untapped source of demand anywhere in the world.
What about global growth and development? There are ~billion living in poverty + general low income for even more.
If India and other high population poor countries achieve what China did over the last ~50 years, while China continue to export while transitioning towards a consumption/service economy, there is another engine for global growth. I'm sceptical this will happen, but the potential source of demand is sitting there.
There’s plenty of demand for manufactured goods. They can just sell to other markets. US foreign policy is causing demand spikes everywhere.
For instance, I read 300M people are projected to starve to death this year. I’m sure China will happily send some of them any excess food, especially since it’s not going to sell it into US any more.
I think you mean there are not enough US dollars in those markets. There are at least two easy solutions: (1) Intentionally tank the dollar to increase the relative purchasing power of other countries (which they have probably been doing - someone is, but the “who” is a bit opaque). (2) Stop dealing in US currency entirely and switch the world economy to a new reserve currency. I suspect that the Euro and/or Yuan will win that war, though some argument could be made for crypto.
I agree Trump may as well be running around naked at this point. It wouldn’t affect most people’s opinion of his competence or professionalism (domestically or overseas).
Anyway: To answer the question that is the article title: Because the US is (was) rich, and has (had) a high but sustainable standard of living.
Don’t confuse desire with demand. Economic demand is desire coupled with the ability to pay.
Nothing to do with dollars. The system is limited by world income.
China is not going to send anything to people who can’t pay. Otherwise they’d continue shipping to the US for absolutely nothing in return rather than the vague promise they are currently taking
And if they can pay then supply will already have expanded to service them.
> There’s plenty of demand for manufactured goods.
This is not true. The US is by far the largest consumer of final household goods at 18 trillion, the EU at 10 trillion, China at 6.7 trillion, Japan at 2 trillion, UK at 2 trillion, India at 2 trillion, the rest of insignificant. You would more of less need to combine every other significant market to match the loss in exports to the US market.
And that won't happen, because of these markets are export driven economies, hence their economies are not structurally designed to suddenly take on mass deficits without mass unemployment coming at hand. Nobody wants to take on the world's surpluses as a deficit country save for the USA, which people in this thread seem quite ardent in convincing Americans to do so, even if they won't support similar policies in their own countries.
Is it not true that China has enough domestic demand to not rely on exports? That was supposed to be the whole point of dual circulation https://en.m.wikipedia.org/wiki/Dual_circulation
"There is no untapped source of demand anywhere in the world."
I understand what you mean, as in the current structure of governments/economies, there isn't a magic wellspring of demand.
Centralization of wealth starves demand, whether it is in authoritarian governments or an oligarchy/kleptocracy. The US certainly has been doing that for the last 50 years. I think there is a lot of demand and growth that is suppressed by the, uh, overindulgence of the "elite".
The elite care about the gap between them and the plebs. The rich love slaves, and that is their ultimate goal.
Why would you not if you don't incur in external debt doing so?
The real wealth is not dollars or pounds or whatever, the real wealth is goods and services.
Having access to goods and service is what gives you a better living standard, the money is just a way to exchange them and to store value.
The US has the privilege of having high international demand for its currency, as it is the default global reserve currency. Of course, it incurs some costs, like having to have the most powerful military in the world, being implicitly responsible for making sure navigation waters are free and unimpeded for commerce, and having to try to keep the powder keg from where most of the energy that runs the world comes from, the middle east, from exploding.
In exchange, if you want more oil? more steel? more children toys? more paint? more chips? You can just use your dollars to buy it, and thus making sure your citizens have access to an unimaginable amount of stuff and services.
You can make the world work for you in exchange for dollars. And the world can buy your advanced tech and services with those dollars, and can use those dollars to also buy things they need from other countries without a lot of the complication of multiple exchange rates and/or barter schemes.
And the best part? Your government can run a lot of programs and not care much about raising taxes, because all those sellers after they use part of the dollars for buying stuff from you and between themselves, will usually have some extra dollars that they are going to save for a rainy day. And what is the best way to keep those dollars safe? Well, buying american treasury bonds!
Yeah, you can exaggerate a little bit and end up deindustrializing yourself too much, or go too hard on the consumption frenzy thing and end up with too much trash, environmental issues and household debt. But those are problems that come from the abuse, from the over enthusiastic use of this privilege. And I hope they can be solved (don't ask my how).
The system actually works for anyone involved. Nobody is really interested on this de-dolarization stuff as long as America also doesn't abuse its power too much.
International commerce is a complex machine, and everybody depends on it, everyone know that changing the current system too much would disrupt international commerce for years. Yeah, in the long run, everything would converge to some new equilibrium, but nobody fucking knows what that equilibrium would be, if it would be stable, and crucially, how much time it would take for it to be achieved. As Keynes taught: In the long run we will be all dead.
No country wants their dollar reserves to become dust, especially not china, they sweated a lot to accumulate all those nice treasury bonds.
> Having access to goods and service is what gives you a better living standard
I think the good faith critique is access to imports can be taken away by the other country if they want. eg. rare earth metals. So being too heavily reliant on imports without the capacity to produce domestically is less long run access
Only if you have a single supplier.
For imports to be useful you need multiple suppliers all of whom have to have capacity to expand if one of the supplier lets you down.
Same as in business.
Industrial policy should decide domestic vs external production on that basis.
As the world moves to trade blocs the case for trade between trade blocs falls - precisely because the risk of getting left high and dry increases
I mean China has cut off rare earths from time to time, and from time to time we don't see crippling shortages but a rather quick supply response.
If you're concerned about short / medium term timeframes, I've yet to see a broad analysis that showed stockpiling (can even do it privately!) being insufficient.
Yes. Too much of a good thing, or a good thing at the wrong place or instant of time, ends up not being a good thing.
I would recommend against having sex in a subway station at rush hour, or drinking French Cognac during a job interview, although both are good things.
We can and should discuss how much trade deficit, and the nature of it, but in essence, it is still a good thing if you don't owe to other countries money in a currency you don't control to have this deficit.
Except the US has a realistic protectionist policy it can use: defence production. It's an industry which is diverse, naturally demands locality, but can also provide an export market.
And very much was a core US growth export till very recently.
> The real wealth is not dollars or pounds or whatever, the real wealth is goods and services.
You missed one that is arguably more important: ownership of assets that provide security, shelter, and productivity.
Control trumps access trumps ownership. If the asset is on US soil under US regulations it's controlled by the outputs of the US political system. Any failure of those assets to actually benefit the local population is a failure of the US political system.
In a simplified sense, all assets start their lives as goods, either tradable goods, goods that are used to build more goods, future goods, or things that represent ownership or an interest in any of them.
Land is a bit more complicated. But even land value is conditional in what you can use it for.
By assets I mean things that are durable and can be held and used for long periods of time, some times spanning generations. Yes, land is the ultimate example.
In a more general sense it can also be systems of law (and consistency of adherence and enforcement) that provide the stability and infrastructure for the trade of goods and services. There is a reason that famines are associated with wars: trade in food collapses when stability disappears.
> Why would you not if you don't incur in external debt doing so?
you described economic Neoliberalism since 1968, in a nutshell. However, its most important consequence - impoverishment of the low-income and very low-income native population and its inevitable supplementation by emigrants, is destabilizing the very nations who championed it.
Secondarily, militarism (NATO, Israel, Taiwan, Korea, etc.) needed to maintain the pecking order is under great strain and requires considerable counterproductive expenditures (Palestine, Iraq, Libya, Lebanon, Ukraine, Afghanistan, Serbia, etc.) just as the native populations age rapidly.
Thirdly, de-dollarization has its own dynamics and is driven by politically motivated economic sanctions enforced by high seas naval interdictions, Russian asset seizures, Chinese exclusionary trade rules, & global criminal gangs like the Kushner's crime family extortion of Qatar in 2017. Rise of BRICs+(25 countries waitlisted), Alt-SWIFT payment systems (BRICS Pay, CIPS) are supplementing USD, the very foundation of the Neoliberal economics.
> Why would you not if you don't incur in external debt doing so?
Don't you, though? If you're in a trade deficit with another country that means they end up holding a bunch of your currency. That's basically a debt, right? They have the ability to get goods from you whenever they want, without having to give you any in return (just giving the currency back).
"Always" being since 1977... prior to that we ran a surplus most years.
Trade deficit are sales envy. Value is exchanged. There is nothing wrong except the empire's unlimited greed to have it all.
it's not greed! It's just being dumb. If the empire wanted it all they'd try and enforce this state of affairs and have an infinite trade deficit in exchange for nothing (/ dollar exporting).
> The saving gap perspective tells a contrary story. Investment spending would have been lower if not for the United States being able to borrow from the rest of the world. One can argue that this funding raised the economy’s productive capacity from what it would have been otherwise.
This sounds backwards, I suspect he's being a bit sloppy when he says that. To sustain the trade deficit it was necessary to enormously increase China's productive capacity so that they could build the goods that get shipped to the US. If the US wasn't running a trade deficit the number in the statistics might have been lower, but it is quite likely that the amount of productive capital actually built in the US would have increased and they might have the same amount of real stuff at the end of the day. They could have built a similar amount of production in the US, for example, instead of importing. The accounting identity for that might be a lower number but that doesn't immediately tell us anything about what the real outcome would have looked like.
It is like the situation where nominally China's economy is nominally smaller than the US's, even though as far as the economists can tell China produces more actual stuff. Accounting identities are so basic that they abstract out a lot of important detail vis a vis what an outcome looks like on the ground. Accounting identities always hold, so any situation that can theoretically occur will have a valid accounting identity. It doesn't make sense to rank outcomes by how high investment spending is, it is important to know what real changes would occur. Which identities can't tell us because they are general.
Obviously he is technically correct that he can argue that, but it is insinuating a relationship. This stuff is the bane of central planners, it is nearly impossible to tell in the abstract whether a change in accounting identities was good or bad for productive capacity.
> They could have built a similar amount of production in the US, for example, instead of importing.
They could not. If they could've, why wouldn't they? Companies, all else equal, have an enormous preference to colocate supply with HQ or with demand, and both are in the US.
They could not because labor was so much more expensive that if you can use cheap capital but it takes 5x the labor you should make that trade and the world will be so much richer because the labor would otherwise be completely unused. The only way around this is to liberalize migration.
This is preferable! Liberalizing migration would also let us escape the terrible cost disease we've been experiencing, but instead we liberalized goods only and now people are confused about why goods are so cheap but human-intensive services (restaurants, education, healthcare, etc) are so expensive.
wow, China’s internal-external internet separation policy really makes it difficult for people outside the country to truly understand what’s going on inside.
I've always disliked economics because it never seems to make much sense. The first equation in the article -- the basis on which the entire premise rests -- just feels wrong.
> Spending is either on the consumption of goods and services or investment spending on equipment, structures, and intellectual property products. Income is allocated to either consumption or to saving by households, businesses, and government. In a closed economy, spending equals income—that is, the sum of consumption and saving equals the sum of consumption and investment spending.
> Spending (Consumption + Investment Spending) = Income (Consumption + Saving)
> Because consumption drops out on both sides of the equation, investment spending equals domestic saving in the economy. This makes sense: the funds available to invest in productive projects have to come from domestic savers.
It _doesn't_ make sense. How is consumption on the income side of the equation? And even if that somehow did make sense, who is to say the consumption on the income side is the same as the consumption on the spending side such that they balance out?
Saving is deferred spending, meaning money is set aside temporarily. One might think of this like a "cash queue" where the velocity of money slows down for a while. Is the assumption that all saving takes place in banks where banks can lend it out? If I stuff cash in a mattress (saving), how can that cash be used for investing?
A more realistic version might look like this:
(fast)
Income --+--------------+-> Spending --+--> Consumption
^ | | |
| +--> Saving >--+ |
| (slow) |
| v
+---------------------- Investment and Production
EDIT: If I'm asking questions, saying I don't understand, and offering a counter-model, doesn't that count as adding to the discussion? If I'm operating under some misunderstanding, there are certainly others who have the same misunderstanding but didn't speak up.
Other people's consumption is your income, not production, producing does not generate income by itself.
> It _doesn't_ make sense. How is consumption on the income side of the equation? And even if that somehow did make sense, who is to say the consumption on the income side is the same as the consumption on the spending side such that they balance out?
The model they are using is a simplified macroeconomic model. In their model, they are simply saying that when you account for Income--the total amount of money earned across the entire economy--it can only fall into two mutually exclusive buckets. Either the income is related to Consumption (purchasing goods and services), or Saving (as you mention, deferred spending--money in banks, or surpluses in the budget for states etc.--anything that is not in the consumption bucket).
> who is to say the consumption on the income side is the same as the consumption on the spending side such that they balance out?
By definition, it has to be. The way national income accounting works is that you can look at things from the perspective of expenditures or income. Since GDP is total output and total income, the total amount of consumption is the same, which is why it drops out in the equation from their model.
So in this simplified model, consumption is like a mobius strip in that while the mobius strip only has one side, income can only come from the consumption from spending.
The fact that they included it on both sides of the equation seems pointless, then, and only serves to confuse.
Klitgaard is talking about accounting, ie, instantaneous currency exchanges where, by definition, the gain on one side of the exchange has to equal the outlay on the other. Your model doesn't look like an accounting model; I suspect you want to talk about something different from what he is talking about - and that you want to talk bout policy implications rather than truisms (which is a good instinct; just not what economists care about when they sit down to talk accounting identities).
> How is consumption on the income side of the equation?
Isn't it just that one person's spending on consumption is another person's income from that consumption?
It isn't called "the dismal science" for nothing.
So what's negative savings in this model? Money you get temporarily and use to increase income?
> I've always disliked economics because it never seems to make much sense. The first equation in the article -- the basis on which the entire premise rests -- just feels wrong.
That's because you're reading an econ 101 equation, similarly how basic physics blogs use spherical cows in equations to simplify them. Most of internet (and even media) discourse about economcs never grows out of this level - it's like having people debate physics of nuclear reactors while their knowledge is stuck on Newtonian level.
Or, as some academic once put it - first year in economics college you learn econ101... and the rest of the years you're taught all the ways that model doesn't apply to real life.
Economics is the formalisation of confusing stocks for flows.
In the real world approximately zero saving occurs by stuffing cash in the mattress, so “all saving is investment” is a correct simplification.
One reason is that certain goods like IP are excluded from trade figures.
I believe that most services are also excluded, but they may have changed that.
Transfer pricing screws up the numbers as well.
Because America is rich and they like to buy things.
By "always" they mean since the 1970's of course.
More buyers than sellers.
And prior to 1870.
From TFA: Spending (Consumption + Investment Spending) = Income (Consumption + Saving) so they conclude Savings = Investment Spending
How does savings become investment spending? Is that through borrowing? Who says borrowing is used for investment? Sure, it's not a great idea to borrow to spend but even corporations sometimes (do stupid things like) borrow to pay dividends which is not investment.
So, first of all, that’s an economics formula: they tend to be extreme simplifications to demonstrate a relationship between variables. Of course, that means they’re often wrong or useless. Sort of like if all physics formulas were “cow diameter=(food-waste)/2” or “car velocity=gas pedal depth-brake pedal depth.” Sometimes economists jokingly call it the “dismal science”; what they don’t mention is that the term came from a paper arguing that slavery was superior to abolition - an argument made with many of the same reasoning errors, oversimplifications and lack of perspective that clouds modern economics. Our modern sciences are not quite as evolved as we would like to believe.
- - -
Now, to your question: this is an oversimplification, but most money that’s not in a mattress somewhere is being lent out (invested.) If I have $500 in a bank account, my bank will turn around and lend my $500 to Bob’s Construction Corp or to Mary for a car loan or whatever. In practice things are a lot more complex, but the portion of money that’s sitting still in a mattress or a vault is fairly small. This means that if I get a dividend, money is moved from one bank account to the next, and the amount of investment doesn’t change.
To explain the sibling that came in accounting jargon, money by its very nature only exists by lending. You can't have your number on your savings account if it wasn't lent to somebody first.
I also did not understand this. It seems that “consumption” has different meanings on either side of the equals sign.
Every liability is an asset on another ledger.
this episode of EconTalk offers a lots more nuance than the posted article
https://www.econtalk.org/the-economics-of-tariffs-and-trade-...
Why is this even a question? I run one hell of a personal trade deficit with Costco and Safeway, because they have groceries and supplies I need to buy, and I have money to give them. Countries are no different.
The whole point of free trade is a win-win game. Someone has stuff/services you need, and you're willing to pay for them. In the end, everyone is happier than before.
Because USA makes garbage
In the news: Everything is out of whack and we're waiting for the next blowup. Who will hold the bags this time?
There is no trade deficit if you consider the dollar is the goods that US exports to other countries.
I always thought the plan was we give them pieces of paper for their stuff. Then if we ever needed to we could say those pieces of paper(or bits in a computer) are no longer worth anything unless you're a citizen. But I had a bunch of gift certificates for ChiChis when they went out of business, and I have been jaded to this sort of thing ever since.
You're going a bit far with "no longer worth anything" but indeed, if the entire world holds a particular nation-state's currency, and uses it to exchange goods and pay down debts, then it gives that nation-state tremendous power.
Printing dollars is often considered a tax on dollar-holders: I print dollars, your dollars become less valuable as my new dollars are circulated into the market. Effectively, this means the global reserve currency's nation-state can impose a tax on the world, instead of just on its citizens.
Why on earth would we ever do that? That's a nonsensical proposal that would immediately make an immense amount of people poor (while also being hostile to so-called foreigners for no reason)
Well I purposely wrote it in a hand-wavy immature way because I don't really understand it. But I did say "if we ever needed to." So whatever the equivalent of declaring bankruptcy is for a country.
Though I would like to amend my nonsense from "a citizen" to "actually in the country" I am imagining cutting off foreign governments and oligarchs, not humans that are actually living here.
Basically, if there was a bad war or something, and we needed to cut ties with most of the world. It's better to be left with the goods than the cash. Because cash has no intrinsic value.
Imagine the contrary. You send out enormous amounts of goods and services, and in exchange, you get less from the rest of the world. You get to pay more for everything, but certain industries get to export more volumes of goods.
Is this better?
We have a service based economy. Or a debt service based economy.
Because US-ians want to buy cheap sh*t in Walmart. On the whole, they seem to prefer cheap to durable/costs more. So USD flow to places with cheaper goods and then flow back as investments.
More expensive hasn't meant "more durable/reliable" for years now.
Not for everything, but in Europe we still value this kind of culture and there are still many examples where it's true.
We spend a lot more on food for example, and half of the US produce is basically illegal here because of the low quality.
More disposable income/debt in the US (in general).
I saw a comment here or reddit that basically said that trade deficits aren't real anyway since we're essentially exporting dollars and importing goods. It changed how I thought about these trade deficits a bit. I wasn't overly concerned in the first place, since it seems like a right-wing boogeyman than an actual problem, and also being a country and mostly imports high end finished goods seems like winning at capitalism.
I mean, you can say the same thing about every purchase you make. The potential problem is that you don't have infinity dollars, so if you aren't getting them back, you have to make more.
>The potential problem is that you don't have infinity dollars, so if you aren't getting them back, you have to make more.
That's basically the basis of how our banking system works though.
The premise is false, and the billions of dollars spent by manufactures every year training foreign-market competitors had increased exponentially since the 1990s.
There is no fix for the world moving into its own derivative technologies, and simply abandoning increasingly hostile origin markets.
It is a complex situation, and throwing taxes/money at the issue is naive =3
To maintain a global reserve currency, US must typically run a trade deficit to supply the world with enough of its currency for international trade and finance
If one wants more equations one might take a look at https://unequalexchange.org/wp-content/uploads/2023/05/The-U... (PDF), Arghiri Emmanuel summarising some of his writings on unequal exchange.
I think what the US administration hasn't realized yet is that the world isn't interested as much in oil anymore.
Previous wars were fought to combat the dropping prices of oil, and to remove influence of the Middle East (e.g. Qatar politics, UAE, Iraq, Iran etc).
Trump is stuck with an industry that hasn't realized what's going on: The new currency is not oil, not tech and electronics, it's energy.
China realized its dependency on oil a long time ago. Take a look at their geopolitical shift in regards to South China Sea expansions to take back control of the trade routes going through the straits in the West and through Taiwan. In parallel, China tries to remove its dependency on oil and coal altogether as much as possible and invests into solar power like no other nation.
Then you look at the Middle East, which is now the replacement for Russia in terms of gas and oil delivery. Russia lost its geopolitical influence on a lot of nations who are now customers of nations in the Middle East, which also removes influence and control of the US, which hurts it too.
Then you have oil trades from Russia to the remaining nations. The ruble doesn't go down further because Russia _forces_ nations to trade its oil and gas in Rubles. They do it for exactly that reason. Why do you think Russia invaded from the East, when from the North and West would have been much easier? What do you think is there? Exactly, the oil fields for which the deal went to Western companies literally two weeks before Operation Z / the invasion.
Geopolitics is meanwhile all about energy. And that's what the US totally slept in and is now paying the bill. But what do you expect being the only nation producing cars exclusively for their own market because nobody else can pay the price to drive a V8 without a catalysator anymore?
The US is a nation stuck in the past, and the pointless hostilities towards surrounding nations won't even help fixing the problem. It would have been a much smarter choice to find reasons for going to war with Qatar or UAE. Just from the perspective of what a "smart bully" would have done. Alternatively investing all budgets into wind and solar energy to make up the losses would have been more future proof, too, and literally the strategy that all other peaceful nations are going for.
Guess the Republicans at the wheel are too busy to throw piles of shit into the crowd, huh? Fear sells easier, after all, I guess.
Because it can.
I wish someone would explain to Trump that decades of low tariffs and trade deficits is what has (had) cemented the US at the center of global trade, with all of the many benefits that comes with. Getting the rest of the world on board with the US-centric economic order has been THE American project of the last 80 years, it's been astoundingly successful, and Trump appears intent on ending it.
It’s been quite amusing to hear him describe the system America set up for its own benefit as being ripped off by the rest of the world. What a victim complex.
Trump tariffs are a leverage to make better international trade deals.
They were always meant to be temporary.
There's no explaining to Trump. He's a willful moron. Dunning Kruger personified.
My take is that the US likes to export US dollars... Then wealthy foreigners don't know what to do with them, so they pour them into the NASDAQ and NYSE and fill the pockets of US executives. The US can also leverage its powerful military to coerce artificial demand for USD within foreign nations to prevent it from being redeemed for US labor. Like how the US coerced Australia into a ridiculously expensive AUKUS deal; really, it's just a scheme to prop up USD and has nothing to do with submarines.
The US has long been playing a game where they give other nations currency that it prints out of nothing on the pretext that this currency can be redeemed for something of real value, but then goes to great lengths to ensure that those foreign nations never actually redeem the currency. This is the 1971 gold crisis in a nutshell. Now the trade deficit in fiat money is just a continuation of this scheme... Backed by even less value. That's why it feels like western economies are being hollowed out. The US economy has been hollowed out and taking its allies down with it.
It's kind of ridiculous how much backlash Trump was getting for trying to do something that is both sensible and necessary. To restore the real economy.
Because Joe Biden and Obama
Countries want American assets - stocks, bonds, property (or abstract ownership in such property).
Countries acquire such assets with dollars. They need to get dollars. The acquire dollars by selling things Americans want, typically physical goods as Americans are very good at making the non-physical kind.
Unfortunately this incentivizes the never-ending march towards de-industrialization in the USA, as countries earn dollars by making things. They get more efficient every year, and more skilled, making more things, to acquire dollars.
That is, I would argue, the single biggest issue animating politics today. It is the argument against globalization, one that has not been solved, and the turmoil in politics across the West with gyrating governments is because voters continue to desire change, and solutions, which no party has yet solved.
Arguing that voters are "stupid" is itself stupid. Voters vote the way they vote. It is on elites and politicians to solve the problem of deindustrialization while maintaining the parts of globalization that are beneficial. If you want to wring your hands and blame the voters, that's fine, but in a democracy you should try to win votes and not call people stupid.
The US has large trade deficits because US leadership uses the lucrative US market as a diplomatic reward. By "leadership" I mean the governing interests of the US, not merely its political class.
The history of this is long, going back to the 19th century, but it became a major diplomatic tool after WW2. As the US sought to secure allies after WW2, it used the incredible wealth of its population as a carrot to gain and ensure compliance of foreign nations. Japan is an obvious example: the recovery and prosperity of Japan was the direct result of deliberately utilizing the US domestic market to create demand for Japanese products. The result is well understood today: Japan thrived as it claimed enormous shares of US electronic, automotive, machine tool, and other sectors of the US economy, and the US secured a strategic ally in the Western pacific, where it has hosted vast military resources for going on 75 years now.
This practice has continued unabated ever since, with Trump being effectively the only significant impediment to have ever emerged. In the 1990s the rationale for MFN status for China was "human rights." China was expected to comport with some notion of human rights and, in turn, China would join the long list of MFN status nations. Again, trade with the US as a diplomatic reward for some US prerogative.
All of this is incentivized by the fact that, aside from approval from the US Senate, the US president has the exclusive prerogative to negotiate trade deals with little to no limits on the terms. The president can do this without passing any bills in Congress, allocating any budgets, winning any court battles, etc. Just negotiate a trade deal, get it approved by the Senate, and shazam: you've changed the world. This is further incentivized by "fast track" authority for the executive, which has been US law since 1975.
Finally, this is all lubricated by the ability to ship vast quantities of cargo from distant locales at low cost. This part really spun up in the 1960's with the US driven standardization of containerization. With this affordance in hand, it became feasible to leverage low cost foreign resources on a large scale, and US captains of industry now had a solution to relieve themselves of high costs in the US: labor costs, regulatory costs, taxes, etc.
With industry and government fully aligned based on independent interests, the trend became the dominant factor of global economics: the world literally runs on US trade deficits.
This has been a one way street for coming up on a hundred years now. It isn't terribly surprising that the pendulum is, if not yet swinging back, at least slowing its present direction. I suspect this part might be hard to understand for those that frequent a site like HN, but the bottomless well of US wealth is basically gone now: much of the population of the US lives a sort of high tech subsistence lifestyle, and it's not difficult to imagine the day when their access to credit will effectively stop. That will happen in parallel with the collapse of government finance in the US, which basically creates a new benchmark for the concept of "clown world" with every passing day.
So there is a hard expiration date coming for all of this.
Because there are 1) willing exporters of US dollars USD (the US federal government USG ultimately, and US citizens in the final analysis); and 2) willing users of USD - us non-US-ian people around the world.
When I sell stuff to someone in the UK, then pounds are fine as means of exchange. When I sell the same someone around the world, then the transaction not being domestic, the cash part that is 1/2 of it (or 1/4 if you want to look at it in a way of transaction = quartet of {stuff,cash,buyer,seller}) and it can be in any currency of any country. It helps if it is the country of the buyer or the seller, but in general it is neither.
I prefer US Dollar to Zongoan Vonga, b/c:
1) USG typically does not devalue their USD much, I don't have to rush to exchange the USD for something else. Or if you want - most others devalue theirs more.
2) USG has not deleted and re-issued their USD even once so far afaik. Other countries do it more often.
3) Everyone else uses USD already. It's easier if it's one currency sufficing for all trade.
4) Often I don't produce oil, and oil is easiest to pay by with USD. Not impossible with others, just more difficult.
5) US banks allow me to hold USD in accounts outside of US. They don't ban me to take the USD in- or out- of US.
6) With USD in hand I can buy lots of stuff US produces, plus I can buy US assets - property, financial assets etc. US does not discriminate against me johnny-the-foreigner much, they are mostly relaxed in that respect. Other countries have all manner of rules that amount to: they'll basically steal their currency off you, or make it worthless to you by making you unable to claim the goods & services that are nominally sold in that currency.
Before people pipe in how US is terrible in this and that - above is all *relative* to all other options all other currencies available. This is from to top of my head, I'm sure I made some error and there is more.
> USG has not deleted and re-issued their USD even once so far afaik. Other countries do it more often.
Interesting side note: they did it once, just after the ratification of the US Constitution. The Revolutionary War was funded in some sense by devaluing the Continental Currency of the time, denominated in "Dollars". You could argue that the "US Dollar" only came to being with the coinage act of 1792, but as a Brazilian I'd say "Potay-to, Potah-to"
> non-US-ian
FYI better not to use silly terms like 'US-ian' as they are confusing and cause problems while solving none. Just stick to the standard 'American', context makes it clear what you mean :)
Haha :-) - fine, hope no offence taken. :-) (none was intended) It came with the flow, flow was - US-... -Government, -Citizens, -Dollar, and then when it came to "people of the world that are not US citizens" (but are users of US dollars) programatically is seems to my compute mind, it came as "non-US-ians" fits that set of people well, and plus tallies with the "US-this-and-that" of the wordings prior. I'm originally from the Balkans, and so cognisant and got some experience with "verbal mines" and nuances in all manner of names and naming-s. I intuit what you are saying. :-) thanks
Because the USA has more money than other countries. People outside the US can't afford to buy our products, but we can afford to buy theirs. This is ideal for many people in the US who want cheap $200 flat screen TVs in every room of their house.
This isn't good for unskilled labor in rural parts of America, often in swing states. Manufacturing had always been a place for high school grads to have a decent career. Those days are over with, but politically they decide the election.
Unemployment is low in the US though? what type of jobs do high school grads do? and would working in a (let say) doll factory be a better job for them?
A lot of people work dead end jobs at walmart or trucking (which is another industry that has taken a big shit like manufacturing)
Manufacturing and trucking jobs and the like paid 20-40% above what you could make at Walmart and other big corporations.
I grew up in a rural town and people decry losing jobs to places like walmart. That said, I still think the bread and butter of american business are all the small businesses that are still kind of trucking.
Small construction companies, small engine repair, home repair, mechanics, etc.
As a high school grad with nothing but a diploma I got jobs working retail, doing data entry/discovery for a law firm, working the graveyard shift as a receptionist for a 24-hour facility. Are those better than doing factory work? I don't know. The discovery one was pretty cushy, but still rather monotonous.
They move to where the jobs are. And the small town where they got their schooling hollows out.
They move to where the jobs are but the ones left behind without a big-city job have disproportionately large political power and disproportionately little education. Letting land vote was a generationally catastrophic mistake, the US has a political system suited for an agrarian/early-industrial/frontier society rather than an urban industrialized society that also happens to be hegemon of the world.
or they dont move, get angry and resentful, and want to upset the economics system.
Swiss checking in. No idea what you even talking about. Do you think we don't have 200$ flat screens?
The decimation of the price of unskilled labor via free trade was one of the all time Panglossian failures to consider second and third order effects.
Manufacturing was “crumbling” in the US decades prior to anything that people today refer to as "free trade."
Automation was reducing the number of manufacturing jobs. But "free trade" has taken away a lot of the manufacturing itself. The US as a whole can no longer make the TVs and iPhones that it consumes so many of.
> It doesn't make low value-added goods like TVs, it doesn't employ a lot of people, and it's not growing as fast as other sectors, but we still manufacture more than ever before.
Yes, aerospace and military tech are the biggest manufacturing industries in USA... Quite profitable these days with all these conflicts...
Perfect answer but it's also important WHY the USA, "has more money than other countries."
It is because we are the only country that prints money at will and forces the rest of the world to use it at gunpoint.
The entire basis of our way of life is essentially printing worthless pieces of paper and digital assets and then literally giving the rest of the world the ultimatum we will kill you if you don't buy and use our currency.
True. It's weird how many of the people who used to know this and protest against it forgot it when the US started using that same power to force their culture onto other countries along with the currency.
As an American, I want my country to get out of this obviously unsustainable position of debt-based hegemon. The tricky part is doing so while staying strong enough that the rest of the world doesn't (quite reasonably) decide to come take a piece out of us to get back at us for the decades of bullying.
Getting real physical products in exchange for imaginary numbers and services is a good deal? We sell a lot of software?
The US runs a $1T surplus in services.
> The US runs a $1T surplus in services.
The total export of services is $1T / $1000B (in 2023):
* https://www.bea.gov/data/intl-trade-investment/international...
It imports $0.7T / $700B worth of services, so the surplus is $300B.
Do you have a source for that? Recently, I was trying to understand the trade deficit when consider services, but couldn’t find anything credible
Living on a farm and getting three square meals a day is a good deal… until it isn’t.
There are always trade offs. I want to live on a farm, but at the same time, I need a relatively quick access to hospitals.
It’s a joke about short sighted farm animals thinking they have it good not seeing the big picture.
You need to add "free" to that joke.
Oh! Okay, I understand it now, my bad. :D
Sales of software to a foreign entity count as export.
It seems great until those imaginary numbers become worthless overnight.
Then you might have a bit of an "oh shit" moment as you realize that the industrial ecosystem required to substitute those imports would take a decade and a half to build even if your money were worth something, which it now isnt.
Lots of countries collapse due to overreliance on foreign imports. Argentina never recovered from its peak in the 1920s - it just kept bouncing from crisis to crisis. This is looking like an increasingly plausible outcome for the US.
Why would they become worthless? The entire world is forever beholden to Microsoft Windows, Office, AWS, X, iOS, Google Play, whether people like it or not. People have made free or cheaper or local or better alternatives and they have never succeeded at dethroning these
I don’t think they’re as beholden as you think. If those companies went down, a balkanization of tech would probably emerge, with regional preferences. Probably would spur innovation and consumers would quickly adapt.
For sure! All you gotta do is the thing every developing economy on the planet has been attempting and failing to do which is escape the middle income trap.
The US is unique in its vision to step backwards into the middle income trap amongst the rest of 'em.
> Microsoft Windows, Office, AWS, X, iOS, Google Play
One of these things is not like the others.
Laughably so...
1. The operating system running a lot of corporate software
2. Productivity suite that is still the standard for creating documents
3. Cloud infrastructure that scales to any demand
4. Porn and racism
5/6. The worlds only mobile operating systems and dominant app stores
> forever beholden to Microsoft Windows, Office, AWS, X, iOS, Google Play,
There is one country that is very much not as beholden as everyone else. Even if everyone calls it a "PPT", it's quite often going to come from WPS.
Though the state of Linux support for things like WeChat/Com is... Not great. But there been a uptick in inquiries about Linux support for a system in the last 2 months so something's lit a fire under some posteriors recently.
Microsoft, AWS, Google (et al) pays bribes in dollars.
I was talking about the US as a reserve currency. That's what is driving the deficit and how the US has been exchanging bits on a screen for free stuff for the last ~50 years or so.
It would collapse in value overnight if there were a run on the dollar (treasury holdings were sold off). Then hyperinflation would set in and import dependence would become existential.
So then wouldn't the smart play to be to trade those imaginary numbers for real industrial equipment today while we build out factories? The Trumpist plan seems to be just smash the economy and then hope that will somehow force us to build back.
I really don't think discussion of complex topics should be reductively reduced to snarky xkcd comics that aren't even right.
Current account deficit already accounts for both goods & services. From a more formal perspective, deficts aren't neccessairly bad if they're being routed into productive investments at home, as with many developing countries needing to import machinery, but if it's being used to fund consumption, and it's persistent, then it's considered by many (including the IMF) to be unsustainable on the long term, and highly unstable on the short term.
The current account deficit can be also expressed as the gap between investment and savings, of which must be financed by a combination of private and public debt to external investment, of which around 50% comes from the ever-growing US Gov debt. You're basically going into debt to finance your consumption, and it's a big reason why the US credit ratings have been going down this decade. You won't fix the debt without addressing the deficit, and can you really count for growth to exceed the interest forever? When the black swan comes, then it's gonna hurt alot more than it needs to be.
Not really? Migration exists and is basically bottomless for the US, especially among people with a lot of money. To increase net savings just let them all in!
Well, as it happens, US Gov debt is about to become worst. And that part has only little to do with trade deficit.
Current Account Balance = Trade Balance + Net Income + Net Transfers = Savings - Investment. As trade balance is usually the largest part of the current account, a trade deficit is usually the current account deficit, which means savings is less than investment. The difference between the two, aka the deficit thus must bridged via foreign financing, of which 50% is done by the US Gov via IOUs such as treasuries. So there is a relation between the gov debt and overall debt, in the Twin Deficits Hypothesis.
Nationalism
I'm surprised to not see nationalism talked about. The topic of trade deficit seems to be less about economic reasons and more about a political movement towards nationalism.
This can be seen in Europe right now, as well as India and Brazil - where those respective governments have taken actions that strongly favor local/in-country based companies over foreign.
And it appears the current US administration is taking a similar approach.
Well: we are about to enter the resurgence of the cold war to the n'th degree, so it makes sense to focus in-country during the ramp up.
[dead]
Because most major countries devalue their currency vs the US Dollar, making imports more expensive. Like tariffs.
the United Stares biggest import ton for ton was (maybe still), oxygen, it looks to be impossible to search for, as of course the only returns are for profit making companys, not anything so trivial as the atmosphere, which realy just makes the point that the whole concept of money and economy exists in a special bubble, where control of the naritive is what realy counts
Too much consumption versus production. One component is the ever ballooning government debt. Essentially in 'trade deficit' the thing that is not taken into account is one very big export article of the US. Pieces of paper with 'IOU' written on them. The whole Trump trade war is the completely preposterous thing of spending more in the shop than you can afford and then blaming the shop for taking advantage of you. This is the concept of 'responsibility' as it appears to exist in Mr. Trumps bug ridden brain.
Other POV : one of the side effect of the Ukraine invasion, it's now possible for countries to buy oil in other currencies than USD. (1)
Because of this, USD 's power is fading and its value slowly plummeting.
One way to limit damages that could come with a weak $ is for the USA to bring back manufacturing capacities. That could be why Biden already put some protectionist measure in place in 2024. (2)
Yes Trump is who he is, but I think the tariffs stuff is part smoke and mirrors to hide that inconvenient truth.
Or as the Super cool ski instructor might say : "If your money is weak and you rely on foreign countries for the majority of your physical stuff, you gonna have a bad time."
(1) https://www.indiatoday.in/business/story/saudi-arabia-ends-8... (2) https://publicseminar.org/2024/09/bidens-green-protectionism...
> Other POV : one of the side effect of the Ukraine invasion, it's now possible for countries to buy oil in other currencies than USD. (1)
I do not know why you're downvoted but I have listened to some very intelligent people who seem to focus on long term thinking & they feel the SWIFT action against Russia will end up hurting the US more than it hurt Russia. Some may argue it was inevitable for countries to start pulling away from the dollar but this increased the speed of it. The current taunting & unfriendly relations is exponentially ruining the USD on top of it.
While the odds were very low for the US to continue it's dominance in the world into the next century, it sure seems our lack of leadership in both parties is accelerating our downfall.
We don't really know why the US savings rate is low, but we do know more explicitly why the savings rates of those "shops", aka surplus countries is abnormally high, with weak social spending, financial repression, currency manipulation etc. Their manufacturing capacities exceed their domestic consumption to absorb, that is to say, they need export markets to stave off unemployment.
Is there not an argument that by the virtue of free capital controls and stronger commitments to free trade, the US is taking the inverse of the exportation of domestic imbalances created by these surplus countries?
US assets far exceed US debts
https://www.federalreserve.gov/releases/z1/20250313/html/rec...
If US private assets were used to "pay off" US government debt (much of which is owed to US private asset holders), then Americans would be about as rich as they were in 2020 (with about $140T instead of today's $170T)
A distorted housing market that sucks up excess money, keeping interest rates low.
Uncap the housing market, free up cash, which will force the Fed to tighten the money supply, freeing investment from the housing market into industry.
US doesn't just get political influence. It gets massive amounts of products and services enabling the US residents live well beyond their means.
China for example, sends huge number of electronics and all kind of other consumer goods that Chinese produce by sweating in 12 hours shifts in 6 day work weeks in exchange for imaginary numbers.
US is definitely not the victim here. There's the risk of this system stop working and that's when the US might have hard times due to being forced to live by its means and have no ability to kickstart its own production when that time comes.
It makes sense to be worried for such an eventuality but US is definitely not being taken advantage here. The situation is more like selling your startup at young age and live a lavish lifestyle with the money without working and studying and risk becoming penniless and unemployable by the 50s.
> It gets massive amounts of products and services enabling the US residents live well beyond their means.
What does this mean really? That is their means.
For a somewhat topical example, people of Australia get access to cheap medications (in part because they pay to subsidize the cost of them but also because) their government negotiates with pharmaceutical corporations to pay lower prices. This kind of negotiation would be completely out of reach of any private Australian person, but they are not living outside their means. Their means includes the means to elect governments to run the country for the benefit of its own people including doing things like securing lower prices for medications.
> China for example, sends huge number of electronics and all kind of other consumer goods that Chinese produce by sweating in 12 hours shifts in 6 day work weeks in exchange for imaginary numbers.
Until 1990, Kenya had a higher GDP per capia than China. It is absolutely not "imaginary". Work produces real value, just because you can represent or trade that for allegedly "imaginary" currency does not mean that the value created was imaginary.
> US is definitely not the victim here. There's the risk of this system stop working and that's when the US might have hard times due to being forced to live by its means and have no ability to kickstart its own production when that time comes.
US manufacturing output is double that of China's on a per-capita basis.
> It makes sense to be worried for such an eventuality but US is definitely not being taken advantage here.
Seems like that's the popular assertion but I don't see much solid reasoning behind it in this thread (not picking on you specifically), just handwaving about how USD's status as a global currency somehow makes trade deficits inevitable despite simple facts available that US had a surplus trade balance 50 years ago, when the USD has been considered the global / reserve currency for over 60 years.
> > It gets massive amounts of products and services enabling the US residents live well beyond their means.
> What does this mean really? That is their means.
The argument presented here is that economic growth (more specifically trade volume increase) outside USofA forces USD acquisition transactions with USofA. This means that there is constant surplus of goods flowing into USofA without accompanying surplus of circulating money supply, leading to artificial deflation.
In other words, the cumulative productivity, measured in USD, of USofA is lower than cumulative outside-USofA-fair-market value of goods transacted in USofA. This effect increases gross value on supply side without balancing out gross value on demand side, allowing domestic players larger transaction volumes than their total productivity, with deficit covered by the central bank.
For other countries USD is something they have to work for or sell something to acquire it. If they screw up they may end up in crisis being unable to obtain USD. Borrowing in their own currency will be much more limited and borrowing in USD much more costly.
USA on the other hand can just print it out of thin air and because the global USD liquidity is huge they can do it for much longer without facing the consequences of it. USA is also borrowing in currency they can just print to pay their debts. Very advantageous position for USA and they took advantage of it, imported crazy amount of products and services otherwise they wouldn't have.
The reserve currency status makes all the difference on how much of all this you can do and under what conditions. That's the difference and that's why US had it so good for so long and now is due for such a large correction. Also, US is blessed with huge natural reserves, didn't actually waste it all on drugs and alcohol but did in fact created some of the best institutions in many areas so maybe it wouldn't be that bad if the politics don't make it bad.
It doesn't matter how much money you print if your debts are USD denominated. If for example Tonga has double their currency in circulation with a debt of Y USD tomorrow they will still owe Y USD and their currency will probably be worth half of what it was before.
In the case of the dollar if you suddenly double the supply it's not just the US national debt that is affected, it's all the secondary financial products indexed on dollar that are affected: debt from countries and private companies across the world, commodities and all transactions between countries not involving US that are dollar denominated. So in a way the value of a single dollar is diluted but it's diluted over a much bigger pool of participants.
That's the main reason printing money is cheaper to US as is reflected on the bond market, just look at supply vs inflation around the years following the global pandemic.
Living beyond their means is very relative. When credit is virtually free for years it makes sense to run 10x leveraged, the problem is when interest rate rises and you have to deleverage without showing too much that you don't have that much money as failing to do so could result in a death trap spiral.
> US manufacturing output is double that of China's on a per-capita basis.
Only on a dollar value basis. And that's heavily skewed on how an item's value is calculated. When you use $50 of parts (all made in China) to assemble a machine that you sold at $500 , $50 of GDP value is attributed to China while $450 of GDP value is attributed to the US. But who did more "manufacturing"?
> What other system of value are you using here? Bottle caps? Nostalgia?
The system where "production" means "where has item XYZ actually been made".
And for more than 1/3rd of all items, the answer to that question is: China.
https://cepr.org/voxeu/columns/china-worlds-sole-manufacturi...
> What other system of value are you using here? Bottle caps? Nostalgia?
A common proxy is "metric tonnes of steel produced" and "metric tonnes of sulfuric acid produced". For China, these have been going up in-line with their GDP growth, whereas for USA they have flatlined since 1980 despite the increase in manufacturing dollar-value output.
China's GDP (PPP) is already ~22% higher than the USA's [1]. Arguably, isn't this a better measure of value? PPP measures the real value to the citizens in a nation, and more closely measures actual economic activity.
Say a bottle of wine costs $20 in the USA, and in total one bottle is produced and sold for a total of $20 GDP. France makes 10 bottles at $2 each, for a similar GDP of $20. It's cool that the USA manages to "extract more value" from its smaller wine production, but at the end of the day, France has the stronger economy.
There's more wine to go around, more resilience to the loss of a bottle, arguably this higher production means more export capacity, more employment, more generation of wine expertise, supply chains, etc.
The nominal GDPs might be the same, but the GDP (PPP) of France in this case would be $200 to the USA's $20.
[1]: https://www.cia.gov/the-world-factbook/field/real-gdp-purcha...
> If the $450 of value was so easy to extract, why wouldn't China simply assemble it in their own country and take the whole pie?
If you pay attention, you'll notice that's what China is doing. For decades, China's GDP growth towered over the US's. Around 2015, China's GDP PPP overtook the US's.
The he issue with this is the dependency direction, if the supplier learns to do the assembly then they don’t need US anymore and can sell the same thing for a fraction of the price.
Or if you go to war then all those base manufacturing can be used to manufacture for military
The IP is important. Not only did you use $50 in parts, but the design, software, and marketing were done in the states. One critical flaw in MAGA thinking is that these inputs are worthless: the full value of an iPhone comes from China because that’s where it was assembled even if most of the value was actually added in the USA. China wants to be on the other side of the value chain as well and really don’t mind swapping places with the US (and it looks like that will happen long term now due to Trumpism).
I suspect in many cases, the "value add" an American firm provides is an intangible.
In the pre-tariff omnishambles world, I could buy a more or less equivalent widget for $18 branded with a recognizable American brand, for $12 as a KWJIBO non-brand delivered from Amazon, or for $6 more-or-less manufacturer direct from AliExpress.
Amazon added $6 of value by saying "I can get it to you in a timely manner and offer a confidence-reinforcing return policy."
The American brand added another $6 of value for "this can probably be sourced consistently and people won't look at you weird trying to get it Shenzhen Tchang Zu Shrimp Cannery And Electrolytic Capacitor Plant #5 onto the approved vendor list."
They didn't actually improve the widget itself, just logistics around it. That means their value-add is extremely tenuous, and has a limited moat.
> then clearly that company created an enormous amount of value
No, it is more like these companies monopolized access to the high income market and exploited this inefficiency. It is similar to buying a stock for $10 then increasing the bid ask spread to sell it for $100.
The main reason why the American company can do this is because we have borders that allow said company to move goods across them, but prevent the cheap Chinese labor from moving to US. If not for the latter, US would be mostly speaking Mandarin by now and things would be a lot cheaper (and salaries would be a lot lower).
> US manufacturing output is double that of China's on a per-capita basis.
If you're going around quoting those figures, you should be aware they're kinda sketchy.
Headline manufacturing output figures measure "real" output, rather than $ of output, as the latter would just be a graph of inflation and exchange rate. And when measuring "real" output, if a factory making 1TB SSDs switches to producing 2TB SSDs it has increased its output, despite the fact they're shipping the same number of boxes as they were yesterday.
Sure, the numbers say real output per worker has risen a lot since 1980. But most of the "rising efficiency" comes from the folks making 33MHz 1-core CPUs now making 5GHz 24-core CPUs. Cut out that sector and you'll discover why the US has an entire region known as the "rust belt".
> What does this mean really? That is their means.
Kind of, yes. Also if you take away other's people assets by force you can say you live by your means because you produce violence.
That's a matter of terminology, the real thing to be considered is the sustainability of this system.
If this setup can be sustained perpetually then yes, it's sort of within your means. If gradually deplete some reserves (gold or trust or domestic stability due to rising inequality) then it can be argued that you live beyond your means.
> What does this mean really? That is their means.
It means Americans are providing mainly a financial service, by managing the dollar. The value of their currency therefore doesn’t accrue from a real economy, which, by definition, only includes consumer goods and services.
If you're spending $1.9 trillion per year more than you're earning (projected for 2025), accumulating debt, I think it's fair to say you're living well beyond your means.
We're talking about $5600 per inhabitant per year.
it's called the “exorbitant privilege”
> Seems like that's the popular assertion but I don't see much solid reasoning behind it in this thread (not picking on you specifically), just handwaving about how USD's status as a global currency somehow makes trade deficits inevitable despite simple facts available that US had a surplus trade balance 50 years ago, when the USD has been considered the global / reserve currency for over 60 years.
Prior to 1971 the Dollar was tied to Gold and exchange rates were fixed by agreement.
Indeed true - US is 4% of the global population but 25% of the global consumption, if not more. You can see this via the eyeball test - everything is bigger: cars, houses, even the people. US invented 'overproduction' to smear Chinese manufacturing, but did not consider the other side of the coin, which is US 'overconsumption'. Two to tango etc
Wouldn't it be more apt to compare consumption vs production. It looks like US is about 26% of global GDP from a quick google. But I'm also suspect of comparing GDP's across nations that have very different methodologies.
Also services are counted there, so it's likely we're exporting services in exchange for manufactured products.
Seems like U.S. healthcare spending is 17.5%-19.5% of its GDP: "Overall, health spending was 17.6% of GDP in 2023, similar to pre-pandemic shares (17.5% in 2019) after an uptick in 2020 (19.5%) and 2021 (18.3%)." (https://www.ama-assn.org/about/ama-research/trends-health-ca...)
I see this tossed around but no one ever seems to point out that EU has similar numbers, which are about half, but still extremely higher than global average; and much more so in the richer countries of the EU (per capita of course)
What about the EU stopping its own subsidies first, before asking this from other countries?
> Zeiss
Since when is Zeiss Swiss and not German?
Also if ASML is partially US owned so are all major US tech companies partially “EU owned” in a similar way.
> It's exactly what's happening: what used to be leaders in ICE cars are now the laughing stocks of the EV world.
This is really nonsense. VAG, BMW and Mercedes have been making good EVs for many years and are now progressing to making excellent ones. They only really lag Tesla on the software/hardware integration (and that isn't actually much of a selling point outside the HN crowd) while they lead on more traditional points like cabin quality.
If you previously wanted to drive a Golf (and tens of millions of people did), then you're likely to want to drive an ID.3, ID.4 or Enyaq. If you previously wanted to drive a Passat, then you're likely to want to drive an ID.7. If you liked the BMW saloons, you'll like the i4. Mercedes are a little further behind, but they're getting there with the EQE.
If I wanted to bet on the shape of the European car market in five years, I'd be betting on German, Korean and Chinese EVs dominating. I don't see much future for American brands on this side of the Atlantic.
Whats stopping you? You sound like jaded old fool who made some serious irreversible mistakes in their lives, and now just overflowing with regret and hate.
EU may be foolish in some aspects, I agree there, but life quality as in actual daily levels of stress, happiness, quality of life, quality and costs of basic services that take care of weak (which one day you will inevitably become too) is stellar and parsecs better what people in same position in life can rely on ie in US. Or crime level. Or free decent education.
But we have freedom, you don't like a place then trivially move, if your skills are worth its salt. You can spend rest of your life in society that has different priorities and thrive there, if you can.
> I'm not that concern for the US: lifestyle may go down a bit, but the US is a country of do'ers.
Yeah, drug do'ers.
Why stick around if you have this amount of pent-up hatred and disgust for the EU, the people who live here, and everything they believe in at a fundamental ideological level?
If you believe the grass is so much greener on the other side then why not just go for it? Judging by your nickname I'm assuming that you have the means to move just about anywhere if you really wanted to, but I think you'll be sorely disappointed no matter where you end up going.
GDP numbers can be "imaginary" but production numbers are not.
China produces more ships in a year than the US. Generates More Power from Hydro than the whole of Africa.
We could dig more -- but that's just on top of my head. Just like how the US was able to help the allies win WW2 by producing more. It will lose a war against China - because of incredible chinese production
Everyone gets something, or every country anyways. The export-led growth Asian miracles are really just a part of this. Maybe the Chinese worker gets screwed, but China maybe doesn't. Something like that.
Chinese workers got actual work vs being automated out of the farming industry and starving. China gets to import raw resources from other countries to feed both domestic production and foreign export.
It was a rational strategy that’s getting outdated as China’s economy grew enough that exports can’t ramp up any more.
> China for example, sends huge number of electronics and all kind of other consumer goods that Chinese produce by sweating in 12 hours shifts in 6 day work weeks in exchange for imaginary numbers
That's more a function of subsidizes instead of foreign preference for USD.
Chinese median household incomes (Yuan 34,000 or around $4,700) are much too low to spend on most goods at scale [0], and most of the money that could be spent on expanding the social safety net (and thus incentivizing Chinese consumers to spend instead of save) is spent on industrial subsidizes like tax holidays, a regressive income tax system comparable to the US, and subsidizing various redundant but provincially influential SOEs that can't compete with domestic private sector players (eg. traditional Chinese automotive players like SAIC and Chery versus BYD), and this is reflected in Chinese spending data as well as StatsChina's breakdown of spending by urban and rural Chinese [0].
You are going to be dependent on foreign exports if your domestic consumers can only spend around Yuan 4000/$550 a year on transportation and telecom combined. Even factoring for PPP, it is difficult as these metrics are low in comparison to peer countries from a developmental standpoint.
A lot of the "overproduction" that has made Chinese goods globally dominant is a result of that misalignment between consumers and production.
Expanding the social safety net in China would dramatically enhance Chinese competitiveness over the long term, but top level leadership remains explicitly opposed to what they call "Welfarism" [1]:
"福利主义典范国家，中产塌陷、贫富分化、社会撕裂、民粹喧嚣，这不乏警示— 防止落入“福利主义”养懒汉陷阱"
"In countries that use a welfare model, the middle class is collapsing, the rich and the poor are polarizing, society is torn apart, and populism is rising. This is a warning - Prevent yourself from falling into the trap of "welfarism" to support lazy people"
[0] - https://www.stats.gov.cn/english/PressRelease/202501/t202501...
[1] - http://theory.people.com.cn/n1/2021/1116/c40531-32283350.htm...
China definitely has industrial policy supporting its manufacturing, but the wages argument is begging the question. The USD, as the global reserve currency, is over-valued; if an alternative system were used (eg. the Bancor) and the Yuan allowed to float, then those 34,000 Yuan would buy a lot more and the median US wage would buy less.
What I mean is that if the CNY properly appreciates relative to the US dollar, that CNY60k ($8,000) EV becomes a CNY60k ($16,000) EV. The median Chinese wage goes from CNY 34k ($5,000) to CNY 34k ($10,000). Meanwhile imports of agricultural products and other things into China becomes cheaper, and the cost of food gets lower.
Most expenses an average Chinese worker pays might be unaffected given how self-reliant China is, but in theory at least the wage gap between Chinese and US workers would close significantly this way, even if the gap in living standards do not.
> In isolation an $8,000 EV looks cheap to us earning a salary in the West, but that is still 1.7x the median household income (so half of all Chinese households have even less money to spend).
You're looking at China the wrong way. A better way to view it is as two countries - a developed urban one, tied to a developing, rural one.
The latter is currently bigger than the former, so it drives any median wealth metrics down. A lot.
But for the past 40 years, the developing part of it has been shrinking - while the developed part has been growing. On that kind of trajectory, that median divide of wealth is currently where the 60th percentile was a decade ago, and in a decade, will be where the 40th percentile is today.
Where does the median urbanite in China stand, compared to her Thai or Malaysian counterpart?
>There's the risk of this system stop working and that's when the US might have hard times due to being forced to live by its means and have no ability to kickstart its own production when that time comes.
I think the risk is greater than that. A concern is not just a regression to the mean, but indebtedness and the future having to pay up for the spending of the past.
I think a different analogy would be a joint credit card where someone can run up the bill and then die. Like national debt, you can always default, but it will be the survivor that takes the hit, not the dead person that spent their life in luxury.
The trade deficit isn't necessarily a problem, but national debt is. It would be one thing if this money was being invested in growth, but it largely isn't. Most of it funds non-growth consumption.
This is largely a self-made internal problem around governmental prioritization and balancing revenue with expenditure. That isn't to say other countries don't also benefit.
The US is trading future prosperity for consumption today. Investing countries are trading consumption today for future prosperity.
> but indebtedness and the future having to pay up for the spending of the past
The debt is denominated USD, the US mint could hypothetically print a trillion dollar note and settle the debts. Doing so would wreck trust in the existing system - so it's not just about the debt, but people tend to gloss over how much control the US has over the debt, so the indebtedness (in USD) is a relatively small factor overall.
> Doing so would wreck trust in the existing system
It would cause immediate hyperinflation. Those notes would go to bondholders who would use it to buy things because holding billions in cash printed by a defaulter isn’t anyone’s cup of tea. So anyone willing to take even absurd amounts of dollars for non-dollar assets is offered absurd amounts. Which means those who didn’t get the helicopter drop find their currency, savings and wages worthless in real terms.
The US has done this before, more than a few times. In fact, de-globalisation can be traced directly to the GFC, where the US did indeed print billions to bail out US banks and auto, then getting Japan and China to step up and buy UST to recapitalise the economy. PBoC in 2013 said 'no more' and launched BRI
Yes, but it's a temporary turbulence that lasts for a few years, then you can rebound. The debt on the other hand can last for decades taxing the economy more and more. If the cost of servicing the debt crosses a certain threshold there can be no rebound, not without a default.
Effectively when printing money you reset both the debt and the savings. If your debt is much bigger than savings it becomes a good deal.
While there are similarities, I think it's still very different. Default by itself doesn't make the debt disappear, you just stop serving it for a while. Then you may negotiate some cuts with creditors in exchange for a promise to repay the rest but there's no way they just forgive 100% of it, this makes no economic sense. If you want to get out of the debt completely you need not only a default but bankruptcy and dissolution which is rather painful at the state level. An example would be the Russian revolution and civil war where among other things the Bolsheviks refused to recognize tsar's debts claiming it's a new state now.
> but indebtedness and the future having to pay up for the spending of the past
Who do you expect will hold the US into its indebtedness?
The entire world is powerless to stop Argentina, why do you think the US will be more impacted?
Nobody can stop the US, they just stop lending under favorable terms, like Argentina.
Nobody wants to make loans to Argentina (or within Argentina) payable in the Argentine Peso. This is the punishment.
The punishment of being credit unworthy is an inability to use credit markets.
This means businesses struggle and the government has its hands tied in dealing with economic crises.
Argentina can't use economic stimulus to correct economic recessions. There is no deep demand for the Argentine peso, so stimulus leads to more inflation rather than increased economic activity
These all seem like side effects of the global reserve currency status. You can't balance the budget until that is given up. Giving up that status would be very painful, so given the choice of pain now or pain later, the current situation seems reasonable to me.
They are separate but closely connected. Something has to cross the border in the opposite direction. Could be corporate stocks or bonds, could be government bonds.
You can see export of government bonds as the last line of defense where the economy failed to produce enough of other instruments to cover the imbalance.
I disagree, it is a consequence of debt outpacing growth.
The key characteristics of a reserve currency are stability and liquidity. If you have these, you don't even need to pay interest.
With properly managed that, being the reserve currency is a win on all fronts. You get to run a deficit because people are happy to trade real products for your paper. People are also willing to loan your paper back to you at more favorable rates. The only downside is if you get drunk and outspend even the inflated demand for your currency. The smart move is to rain in deficit spending if you can't get favorable lending rates.
Blowing up reserve status doesn't help this problem. Then you just have to pay higher and higher interest rates because no one wants your paper anymore
The mental gymnastics here to justify the dollar's reserve status and trade deficits as some kind of genius economic strategy are incredible.
First off, this ridiculous notion that the US "gets products and services enabling residents to live beyond their means" is classic ivory tower cope. Yeah, tell that to the average American worker whose real wages have been stagnant for DECADES while housing, healthcare, and education costs have gone full rocket ship. We're not living large - we're drowning in debt while our industrial base gets hollowed out and our cities rot. But sure, keep telling yourself those cheap plastic crap from China is some kind of economic superpower move.
And this nonsense about "imaginary numbers" - spare me. Try telling the Chinese worker breaking their back in a Foxconn factory that their labor is being exchanged for "imaginary" dollars when those same dollars buy real commodities on global markets. The only thing imaginary here is your understanding of how actual wealth transfer works. The Fed's money printer goes BRRR, Wall Street gets bailouts, and the working class gets hollowed-out towns and opioid epidemics.
This whole "trade deficit is fine because we export dollars" nonsense is cope. We get to print monopoly money and trade it for real goods sounds great until you realize it's turned the US into a hollowed-out consumerist wasteland. Our manufacturing base? Gutted. Middle class wages? Stagnant for decades. But hey, at least Wall Street gets to play financialization games with all those dollars floating around overseas, right? The petrodollar cope is particularly hilarious. "Oh but the USD is backed by oil and military power!" Yeah, how's that working out now that the BRICS nations are openly trading in local currencies? Saudi Arabia taking yuan for oil? Russia and China settling trade in rubles and yuan? The entire Global South is laughing at your "reserve currency" while they quietly build alternative financial systems. But sure, keep telling yourself that 1971 was some genius move rather than the beginning of the greatest wealth transfer scheme in human history.
Spare me the "political influence" argument. You know what else gives you influence? Actually MAKING things. The US used to be the arsenal of democracy because we had real industrial capacity. Now we're the ATM of the world. Sure, everyone takes our dollars, but they're laughing at us behind our backs while they build actual industries. China takes our funny money, build world-class infrastructure and tech, while we get... what? A service economy of Uber drivers and baristas? The MMT shills in this thread claiming deficits don't matter are smoking crack. Yeah, it's all fun and games until the music stops. The dollar's dominance isn't some natural law. It's propped up by petrodollar recycling and military bases in 800 countries. But guess what? The BRICS are building alternatives as we speak, and when the world finds a way to ditch the dollar, the inflation tsunami will make the 70s look like a picnic.
And don't even get me started on the "but manufacturing doesn't pay well" cope. Oh yeah, because working at Amazon warehouses or DoorDashing is such a step up from union factory jobs that could support a family on one income? The deindustrialization of America was the greatest wealth transfer from working people to corporate elites in history, dressed up as "free trade." The 1971 Nixon Shock was the original sin that decoupled money from reality. Since then it's been one giant debt orgy where the rich get richer by financial engineering while the country's real productive capacity withers. But sure, keep telling yourself that running perpetual trade deficits while offshoring our industrial base is "sustainable" because we have the money printer.
China now owns our supply chains, controls key industries, and is busy strong arming its way to global dominance. Walmart shelves full of $2 plastic junk don’t make up for the collapse of skilled labor wages. Go tell a factory worker in Ohio that his job loss was worth it because iPhone assembly got outsourced to Foxconn. The "cheap goods" argument is cope for elites who profit from globalization while real wages stagnate for decades.
The average American gets screwed by this system with stagnant wages, unaffordable housing, and a crumbling infrastructure while the elites jet around on private planes bought with Fed-printed junk money. The dollar's reserve status isn't a privilege. It's a curse that's let us paper over our decline with debt instead of making tough choices. Confidence in the dollar is not an infinitely sustainable glitch. When the world finally gets sick of funding our deficits, the reckoning will make 2008 look like a picnic. No fiat currency survives its own abuse. When the reckoning comes, it won't be the bankers and politicians who suffer.
The reality is brutally simple. Decoupling from gold removed all discipline from the system. Politicians could spend without consequence, financiers could gamble with abandon, and the productive economy got outsourced to slave-labor nations while we became a nation of paper-pushers and baristas. Now we're staring down the barrel of $35 trillion in debt, supply chains we don't control, and a currency that's one crisis away from a Venezuela-style collapse. But yeah sure, keep telling yourself everything's fine because some Keynesian academics drew you a pretty graph. The Romans probably had similar debates while their denarius turned to trash and the barbarians gathered at the gates.
> The deindustrialization of America was the greatest wealth transfer from working people to corporate elites in history, dressed up as "free trade."
You make it sound like this was a conspiracy, and perhaps it did devolve into that eventually, but this system was introduced at the time in order to deal with the stagflationary crisis of the 70s. Only because things had gotten so bad, did Reagan and Thatcher manage to get the democratic support for making the transition.
Very emotional post.
> The 1971 decision didn't solve stagflation it just kicked the can down the road
It kicked the can down the road for half a century. It bought a lot of time. This approach, of betting on a miraculous solution in the future, is deeply ingrained in policy making; it’s not unique to the neoliberal reform. In fact, the next solution could just be figuring out how to kick the can again.
The next phase looks like it will entail gov intervention, by issuing loan guarantees, or by mandating the investment of national savings into specific industries, like manufacturing and energy. Capital misallocation and the return of stagflation will lead to another crisis, but in a few decades from now.
Pegging to gold by itself doesn’t really solve anything, if the overarching system remains based on relentless exploitation by selfish interests. Sooner or later, overdraft facilities will emerge for gold that doesn’t exist; so, the traumatic cycles of boom and crash will be repeated. Not to mention the deflationary dynamic, which will overwhelmingly favour those who already own gold. In general, you can’t de-politicise monetary policy (by fixing its supply), without inevitably amplifying the overarching system.
Even more sad that the US chose NOT to invest this surplus, for instance in infrastructure, education and a sensible health system.
The US spends $1T on education. It is extremely difficult to justify spending more when the US already spends far more per student than other developed countries. Same with infrastructure and healthcare. Without accountability for where that money went it would be foolish to throw even more money at it.
Also, in the US, infrastructure, education, and healthcare is primarily the responsibility of individual States, so it really needs to be measured on a per State basis. For some of these things, some States deliver high quality at low cost and other States deliver low quality with an order of magnitude higher spending for the same thing. The correlation between spending and results is surprisingly weak. Competency and focus seems to play a greater role.
Because like most US systems, the institutions are far too fragmented and therefore overly complex and inefficient. So, a lot of the money just goes towards the overhead of logistics and managing the beast - aka, administration.
It's the same problem in healthcare. We spend a lot of government dollars on healthcare. But when you have thousands of insurers and then boards per state and extremely complex billing, you're going to be putting the majority of your money into not-care.
It’s up to the local school board to carve up the budget. Usually the top items are salaries, pensions, and health insurance for teachers and staff.
If we’re looking for contributors to differences in education spending between the US and other countries, those school boards are one place to look. The overhead of administrative staff at thirteen thousand local school districts is significant.
The US also has quite high salaries by international standards, which increases per-capita spending on pretty much anything.
b/c they're not very bright?
Rural population density isn't a real problem for education. Some rural school districts have to run longer bus routes to service their students but those aren't particularly expensive.
The system can’t do anything if academics and discipline aren’t instilled at home.
okay, but if the system is corrupt and inefficient then throwing more money at the problem will just make it worse
The problem here is with the assumption that the problems can be solved by throwing money at them. Typically they can't.
To a very large degree what schools turn out is based on the students that come in. It's the home and the neighborhood far more than it is the schools themselves. You get a better result if you put students with other students of like ability and motivation. This works pretty well at the university level, but historically it was used to discriminate and thus doesn't get done earlier. And, likewise, we are very focused on equality even when it comes at a detriment to the students. (Once again, legacy of it being used to discriminate.)
No one said the current system is good, just that it can’t be fixed with more money nor can it be fixed at the Federal level. None of the issues you mention have anything to do with education spending.
is that trillion with some PPP correction or without?
The amount of dollars the US gives to school districts does not tell you how much the US spends on education, because only a portion of that money actually goes to pay for the school or teachers. The rest goes to nonsense like obscene administrator salaries, which have seen the same stupid growth as CEO salaries.
Why are Teacher salaries still so low and teacher:pupil ratios continuing to get worse if we spend so much on education? Why is it that literally the primary thing that education tax dollars should be spent on, educators, is not what it is spent on?
Consider that one of the best states in the US for education, supposedly new jersey, pays it's teachers a MEDIAN of $82k. Starting is above $50k according to teachers.
In pretty much every state, the median teacher wage is equal or within 5% of the state's "living" wage.
Most places require a college degree for teachers. If they don't, that's scary in other ways. But why the hell am I spending $40k on a college degree to make barely living wage for the rest of my life? You know who does that? People who aren't very smart. Gee, I wonder why we struggle to find good teachers.
40% of our nation's teachers have a second job. That's funny, because I assure you that damn near any teacher that actually does their job works twice as hard as most other professional jobs. You don't actually get any time in your day to grade student work most of the time, so you have spend your own personal time to do your job. Every single piece of homework your child brings home is at least an hour of grading for that teacher, and that's just a niche subject or small class size. Good teachers are also running their departments, designing lesson plans, building entire portfolios of tests and work, and none of the promises of technology have done anything to improve these parts of the job. Digitized grade books are pretty good, but now they mean teachers have to deal with the worst parents bitching about their kids getting a bad grade because they didn't study, which is not something the teacher can help.
Because the population has been tricked way too many times with the "we're allocating these taxes to education" dogwhistle.
When every fucking time they open a lottery or have a new tax, and promise it will go to the schools, but they defund what's coming out of the general fund to the schools by that exact amount, you can only cry wolf so many times before that doesn't work anymore.
To get this to work anymore you're going to have to create a constitutional amendment or something that the school gets X and there will be no fuck fuck games that they aren't just defunding the schools some other place so they can use it on the next corrupt "construction" project.
The US spends, per capita, more public funds on education and health care than any other industrialized nation in the world.
Some of the worse performing schools in the US have the most per capita funding.
The U.S. can absolutely fund Scandinavian‑style social programs, it just chooses not to, in part because the reserve‑currency framework makes the optics of deficits uniquely skewed.
This is one of the consequences of the US's self-inflicted burden of the Triffin Dilemma.
Car infrastructure and sprawl is hugely expensive and we spend tons on it
Even alon levy disagrees that maintaining suburban infrastructure is a huge driver of spending
https://pedestrianobservations.com/2024/10/07/taxes-are-not-...
sad that you're being downvoted here, very clear that the US investment into society is low in relative terms. In fact, doing so in considered 'socialism' and widely condemned by almost all the political establishment.
The surplus came with alot of responsibilities, like policing the world. And that had a hefty price tag... nearly $1 trillion annually. Wasn't much left over for public transit and free foot massages. I can entertain arguments that it was a bad bargain.
Policing the world is a jobs program for all of the unionized factory workers at lockmart and Boeing that would otherwise be, at best, trades workers earning a more modest wage. We can thank the MIC’s placement of factories in strategic congressional districts for that
> How much public transit and education could that have funded?
Given the current costs for NYC to expand its subway, about 500 miles of track given the current costs per mile.
Just because there is a soft power upside does not mean that it is a net positive. I often see this stated without any form of quantification. It is essentially a matter of faith.
IMHO that's a false dichotomy. The US has the worlds most inefficient health system, which is an incredibly large budget post, most of the money going to middlemen. Besides, it has also benefited from open shipping lanes as much as the rest of the world, if not more.
Yeah, only that if you spend more per capita on health care than comparable national, not less. So the argument of "We can't do $A like other countries do, because of $B" doesn't really fly if you spend more to get a worse outcome.
The problem the US has in regards to healthcare, that the goal of its system isn't to supply its population with the best quality healthcare for the lowest amount of cost — the goal instead is to allow all kind of market actors and middle man to make a profit without the population revolting.
>health insurance CEOs a little richer.
To be honest, I don't even think it's just the people at the top profiting. The whole system is like designed to create as many useless jobs as possible. If I want to get a blood test, I have to do like 4-5 referrals before I can just get my test done. If I want a diagnosis, I have to wait a week to talk with a doctor who is going to push sponsored medication anyways. I'm better off doing the research myself and buying drugs through telehealth service or the greymarket.
You would be better off just having a free market where consumers figure out what doctors/nurses/pharmaceuticals are safe on their own, and you strip intellectual property protections and legal requirements for prescription drugs. It shouldn't cost a million dollars to get an x-ray. It does because there are high legal barriers that allow rent-seekers to creep in.
It seems like a bit of A and a bit of B, perhaps more A than B.
How do we maintain global reserve status—what is the cost? Is it one of the reasons why have military bases all over the world? Back in the day, people used to say the U.S. went to war in Iraq because Saddam was going to switch away from the petrodollar. Under your reserve-currency theory, that seems quite possible, no?
Adam Smith already pointed out that a trade deficit is not really interesting, so I do not understand the American obsession about it ;)
Also, the often-mentioned US-EU trade deficit is not that big if you count in services. Which I think should be done in the 21st century. Large parts of the US economy are focused on digital high-value services, and they are "exported" worldwide.
In fact, according to US government published numbers, the US runs a goods+services surplus with quite a few countries.
FWIW, I’m not sure I believe the official numbers, or at least I don’t believe that they measure anything useful. When a French customer buys an AMD CPU or Nvidia GPU that was made in Taiwan, the physical object may never touch US soil, but a lot of money flows in. Did we export a good, a service, or neither?
What about when a Spanish user sees an ad funded by a German company and four different US intermediaries are involved in showing that ad? What if the US companies play complex accounting tricks to redirect the income to a subsidiary in a low-tax jurisdiction like Ireland and then effectively materialize some of the dollars in the US by buying shares in the parent company’s stock but mostly just let the nominally Irish dollars sit in US accounts and let US people own very valuable stock?
(Interestingly, IMO none of this requires that USD be a reserve currency. One could easily imagine the same type of economy where gold earned in Europe in deposited in a vault in the US, held by an account that is nominally Irish, and used as investment collateral for various US or foreign investments denominated in XAU. Or it could be cryptocurrency or pretty beads or whatever.)
You have to start somewhere though. The alternative, throwing your hands up and saying "this is too complex to track", isn't useful either
It's useful as a political tool, that's about it.
Up until now it was a fairly harmless political distortion. I suspect in the past we maybe had some executives who themselves bought into it but they took input from folks more educated on the matter and just let sleeping dogs lie.
But now we have an administration who at least seems to believe it whole heatedly and isn't interested in anyone who is educated on the subject providing input.
> Also, the often-mentioned US-EU trade deficit is not that big if you count in services. Which I think should be done in the 21st century. Large parts of the US economy are focused on digital high-value services, and they are "exported" worldwide.
This is why, in case of reciprocal tarriffs on physical goods, the US ends up the big winner - they don't apply to digital services, which are a huge part of US exports.
Now the world had slowly been catching onto this fact that they'd been getting absolutely rinsed by the FAANGs who have gotten their populace addicted to their opium and made trillions off of them without contributing anything meaningful back. For the first time, we were seeing digital services taxes - a decade overdue. Brazil now has one in place - great on them. The EU was also planning one, but then the tarriffs came, and suddenly voices are saying they might abandon it. If the current US gov was any other US gov, the obvious conclusion would be that they're using tarriffs as a pawn to prevent the rise of digital service taxes.
Obviously, in the current timeline this wasn't the main reason. But there's no way Mark, Satya, Jeff and Tim haven't been whispering into big leader's ear just how "unfair" these DSTs are.
The American obsession has to do with its value as a political weapon against the minds of dummies (with votes)
The obsession has at least one interesting question attached: ownership of real property. At the limit, at least, that becomes a genuinely interesting question.
yes indeed - it has been conflated with the decline of US manufacturing. Reality is the most significant export of the US is the USD itself - that is the trade good which everyone must have (at US insistence)
Out of all the many industries out there, I don't understand why we keep glorifying and romanticizing manufacturing and trying to "bring it back." Depending on what you are manufacturing, it can be a very boring, stressful, stinky, physically taxing, or dangerous job. And it really doesn't pay well. It may have paid well 70 years ago, but it doesn't today, and you can't turn time back.
A lot of customer service and telemarketing jobs have gone offshore. Nobody is romanticizing about bringing them back. Same with textiles and clothing. Nobody is calling for a return of sewing sweatshops. So why does manufacturing win elections?
The best national security is for it to be in the interest of the counter party to trade with you rather than attack you.
Tariffs and protectionism tilt the favor closer to attack. In the extreme, a nation that completely refuses to trade can't offer nor take anything beyond spoils of war.
Others have mentioned geopolitical priorities like self-sufficiency or wartime economics, but I'd like to focus on the popular-opinion side of things.
It's misguided nostalgia: People recall a time of high wages which co-occurred with certain industries/jobs and strong labor unions. [0]
They (reasonably) want that kind of high earning-power to return... but incorrectly assume (A) the same products/processes are still highly profitable/scalable and (B) that they'll somehow (re-)capture a big slice of any pie without (re-)unionizing.
[0] https://www.epi.org/publication/unions-help-reduce-dispariti...
Because self-sufficiency is a prerequisite of control. “Things” are as essential as food or drinking water or energy in our modern world. Imagine if your country was reliant on another nation for all your food and water: they would have total control over you.
Modern manufacturing is not like the factories of old. Go to China and tour some modern factories: you’ll be surprised. It doesn’t pay well _in the US, in 2025_ because it’s a dying industry. They could easily rise: manufacturing wages are a tiny cost of the sticker price of anything you buy today. Wages have been rising significantly in China for years with little impact to overall product costs. But that’s because they have a competitive manufacturing industry; no US factory owner is going to invest in top talent for a dying factory that has been uncompetitive for a decade.
> Out of all the many industries out there, I don't understand why we keep glorifying and romanticizing manufacturing and trying to "bring it back."
It’s a matter of national security. Look what happened during Covid when we couldn’t produce basic medical necessities at scale.
If you go to war, do you think your adversaries are going to supply you with tanks and medicine?
I think it's because if you tour through the US, you'll come across hundreds of cities that are completly abandoned and rotting that all used to manufacture items. It's hard not to wonder what happened. Instead of working at those hard but well-paying jobs, those people get to work at walmart for minimum wage.
I see it as a kind of misdirection, whether accidental or deliberate: Make the average person blame their malaise on the blend of industries, rather than their lack of bargaining power in the ones that exist.
Like all the nonsense about "bringing back coal" when the number of people working in it has been declining for a solid century for good reasons.
"If only we bring back buggy-whips, I'll be able to support a family like my pappy did."
China wouldn't be the number 2 economy and massively increasing in global power, military, and technology if domestic manufacturing wasn't valuable and important. The US itself wouldn't have risen to preeminent global power and technology center if not for post-WW2 being worlds manufacturer and supplier.
Because manufacturing means widgets which has physical properties and dummies equate widgets with $$$. Software and services are too abstract and high falootin' and scary.
> some segments of American men really glorify their work.
What should they glorify instead?
Being valued by a community? Consumerism and mobility has fragmented communities such that most Americans aren't part of any meaningful social institutions anymore. Secularism (which I think is overall a good thing) has cut off church as another aspect of community.
Being a good friend? Again consumerism and mobility has led to a massive loneliness epidemic with many men reporting they have zero close friends.
Venturing into the unknown and discovering new resources to bring back home? The map is fully painted in. The exploring that's left to do is in the deep reaches of science that requires massive education investment in order to spend years in a lab making a tiny discovery.
Going off to war and protecting the innocent against violent invaders? The last arguably justifiable war was nearly a century ago.
It's hard world to find dignity and meaning in today, especially for men in the US, and especially for ones who by personality lean as much towards using their body as their mind. The US used to offer them form or factory jobs that were, yes, hard and dangerous, but (at least in our romanticized memory of it) enabled them to come home at the end of the day and feel they'd provided some value.
Problem is that the USD factories don’t provide enough jobs for the US population
The global demand for USD puts downward pressure on the price of US goods.
It doesn't matter. Even if zero new jobs are created, it still represents a capital investment in robots and lights-off factories to increase national security going forwards.
Unemployment is roughly 4%.
Then why allow over 10 million illegal immigrants?
The average American conflates trade deficits with the loss of domestic industries/jobs.
- AI will devalue digital services
- Trumpism might be a massive blow to American culture exports (which are also the digital services exports)
- the world is getting less secure, more "interesting" in the chinese proverb sense
- the trade deficit is related to decline in the middle class and manufacturing
There wasn't an obsession. Trump just weaponized the word deficit to justify tarrifs. Anyone with an IQ over 100 and two minutes to listen to an explainer video on this would quickly understand the con.
As has been mentioned a couple times in this thread, the trade deficit does have a real negative impact on US industry. Whether or not that's good or bad for a particular person depends on their socioeconomic situation. One would reasonably assume that Trump's base is largely made up of folks for whom the trade deficit has real negative consequences.
> They can then use these earned dollars to transact with other countries, as the US itself insists they do.
I feel like people who post this have no idea of the "eurodollar"[1] or the fact that it was London (and the EU, at the time, in general) that benefited from popularizing the USD as a reserve currency versus pegging one to their previously decentralized currencies or risking their own currency control.
The US doesn't need to insist on anything. As you yourself stated in the paragraph previous to this, it's a natural side effect of being a large economy that everyone wants/needs to trade with. For the most part, the eurodollar has been a pain in the side of the US as it removes some control over their own currency. In some cases this has helped, as it's tempered certain recessive/depressive effects during downtimes (especially with Europe), but it's also caused inflationary issues that are outside the hands of the Fed. The US (like pretty much any nation minting their own currency) would prefer to have that control over some ephemeral benefits that very few can ever seem to articulate or meaningfully quantify.
1 - https://en.wikipedia.org/wiki/Eurodollar
> At the expense of hollowing out domestic industry
This doesn’t seem obvious to me. Trade happens because it mutually beneficial.
The counter factual to reducing trade isn’t that we would manufacture the equivalent amount of goods here and be just as rich.
It’s that we would be poorer. And certain goods would cease to exist, and all of us would have to learn to live with less because it’s simply infeasible to manufacture everything here.
> The counter factual to reducing trade isn’t that we would manufacture the equivalent amount of goods here and be just as rich.
> It’s that we would be poorer. And certain goods would cease to exist, and all of us would have to learn to live with less because it’s simply infeasible to manufacture everything here.
This should be in billboards all over the US. I don't get what is so hard to understand.
Globalization made us all richer and gave us the luxury to pursue new technology.
Self-sufficiency points towards subsistence farming.
>> all USD transactions go through US institutions regardless of where those transacting partners are located.
Do they? It is my understanding that the (originally London based) Eurodollar market deals in USD without US treasury oversight.
As will Hong Kong soon.
You are correct and the original poster is wrong in this specific regard.
Infact one of the most interesting/scary incidents for the US dollar was China selling USD denominated bonds and getting almost the same rate as the US government gets, which essentially means China can compete for USD with US government.
The implications of this is that if CHina wants, they now have another level to compete with the US. They can now issue USD denominated debt along the yield curve in areas where it would hurt the US hte most.
In the short term that is the frond end of the yield curve(short term under a year) where the US has to roll about $8 Trillion in debt over the next year.
With China competing by offering bonds here they will force up the interest rate the US has to pay pushing yields up with is the exact opposite of what Trump has publicly stated that he wants and making the US's already large fiscal deficit an even larger problem.
China certainly can issue dollar bills more cheaply than the US and it already does in small size, but scaling that up would concentrate currency, rollover and sanctions risk on Beijing while simultaneously reinforcing the dollar system it ultimately wants to escape. The trade-off is therefore asymmetric: the political sting to Washington would be modest and reversible, whereas the balance-sheet, legal and geopolitical liabilities for China would linger long after the bonds are sold.
> Its Western assumption that China wants to escape the USD reserve currency.
Nah, they have a lot of them, they don't want their value to drop.
What the world wants is to escape (at least in the medium term) is the US oversight that forces the USA's enemies to be everyone else's enemies.
From what I can tell, they are going to use (are using) Hong Kong as a ex-USA location to price and trade USD - modeled on the Eurodollar. With a lot of trade-with-China being settled in their e-CNY CBDC.
As a poster alluded to - the big loss for the USA is the insights into pricing and demand.
Nascent, but that's the trend AFAICT.
appreciate the education
Sure, but London is in the UK, and the UK is a member of the Five Eyes, and so is the U.S. It's pretty safe to say that if the U.S> wants that data, the U.S. gets that data. However, all those transactions are settlements transactions, so it's not that useful.
Correct.
You can open up an USD account in maybe Zambia and transfer funds to another USD account in Dubai without it ever touching the US financial system.
Yet interestingly the USA could put you in jail for wire fraud for 20 years for doing so even if you never interacted with the USA or any US citizens or ever stepped foot on their territory.
Well there has to be something a little softer than the extrajudicial drone executions.
Is that correct? My understanding is that the SWIFT transfer will go through a US correspondent bank in this case.
Not necessarily. A correspondent bank is simply a bank where the recipient bank has an account in the specified currency. For domestic currencies used only in certain countries, that bank will almost always be in that country. For currencies used globally - not necessarily.
It is utterly baffling to me that some Americans see the massive amount of free goods that they get as part of being the reserve currency with trade deficits, and somehow think "hollowed out manufacturing" rather than all that cheap stuff we get.
The rest of those countries that are manufacturing things are far far poorer, and desperate to switch to industry higher up in the value chain, where the US is.
And a half-analysis of the situation, and a halfwit in charge of the country that thinks the trade deficit is like a budget deficit, and the US is throwing away the heart of its economic powerhouse over half understanding of the economy.
It's truly breathtaking. Like watching Brexit on repeat. Just utter economic suicide disguised as strength.
Play it forward a half century.
Physical productive capacity is gone. Your global competitor is the de facto production hegemon. Debt has ballooned, and you can’t fund welfare programs. A big chunk of your country’s assets are owned by foreign investors.
But yes, you got a lot of cheap things before the music stopped.
> all USD transactions go through US institutions regardless of where those transacting partners are located
This is not true. See: Eurodollar - https://en.m.wikipedia.org/wiki/Eurodollar
> No one else can manufacture USD's, so other countries have to acquire them by shaping their economies to supply goods and services demanded by the US.
They can just buy dollars from the other countries that already bought dollars. A huge amount of trade is dollar denominated, so there's no need to directly sell to the US.
> For the US, this is a simple trade off - gain massive political influence (and market intelligence - all USD transactions go through US institutions regardless of where those transacting partners are located), at the expense of hollowing out domestic industry and running a deficit in physical goods traded.
That's just false. There's no magic mechanism to force transactions to flow through US banks.
This is also why China isn’t too keen on using the RMB yet in the same way, it is still not freely convertible. The question comes if the USA is insistent on giving up its top spot in the world economy, what currency will fill the void?
> running a deficit in physical goods traded
This is not a disadvantage. By your own admission: we send dollars overseas in exchange for goods. We never have to actually send goods of our own. We effectively get them for the price of printing dollars, so effectively free.
some one really need to explain this in a way I understand, because this sounds very much like "free lunch". Matt Levine explained it as exporting debt ("The US is better than anyone at manufacturing financial instruments"). He also said we get computers in return for entries in a database.
This sounds... untenable? too good to be true? a shakey foundation on which to build an economy?
When Apple wants to raise money, it could go issue more shares and sell them on the stock market, and their shares are in high demand because expected future earnings are high.
With the US, the expected future utility of a dollar is very very high, at least far higher than most other currencies.
Combine that with the need for enough currency to be in circulation to support the size of the global economy, and you might call it a "free lunch" or you might call it "something that only an utter fucking idiot would ever risk giving away."
And it's certainly not the foundation of our economy, not at all. The foundation of our economy is large tech stocks, absolutely monstrously high GDP, massive investment in the future via scientific discovery, extremely robust protections against corruption that let entrepreneurs flourish, and a military backing it all. The "free lunch" is the reward for topping the rest of the world in all those areas.
The entries in a database are IOUs. The US will have to return something at some point, but as we have complete control over our own currency, the terms of the deal are... very flexible on our side.
It's effectively a bet on China's part that (1) it's worth it to build their own industrial base and (2) the US won't renege, at least severely, because of the consequences.
Worth noting that the current proposals to further blow up the deficit may actually accelerate this dynamic, regardless of tariffs, because somebody has to buy these IOUs.
it's called "exorbitant privilege" if you want to look it up
> all USD transactions go through US institutions regardless of where those transacting partners are located
This isn’t true.
>The solution is a non-national global reserve, calculated on a basket of national currencies. This was Keynes argument at Bretton Woods, but the US would not have it then, and does not want it now.
But what does the US want now? It's government's actions are making it more difficult for other countries to trust it for the global reserve currency. If it really wanted manufacturing to return to it's shores, there's other ways to accomplish that without rewiring the global economy: carrots, not sticks.
> the expense of hollowing out domestic industry
> Post WW2, US leadership [deliberately] traded the domestic manufacturing industry [capability] for national security, by making the US dollar the default international trade currency. [This] gave America benefits, but increased the value of the dollar astronomically, which made it impossible to manufacture anything locally ... the logic at the time was that Americans would up-skill en-masse, away from the menial manufacturing jobs [of history] -- but everyone is too much of a dumbass to stay in school [which is required for all of this to work] ... Let's Go Brandon!!
https://www.youtube.com/shorts/SCUy3DrUZmw
The non-national global reserve suggested by Keynes was to be called Bancor, however Harry Dexter White's plan was pursued instead.
I mean, the SDR exists, and currency baskets are not new or unheard of.
USD has mostly been where it is because the alternatives are a lot less appealing:
* CHF - they explicitly would rather not be a strong reserve currency and threaten to print money whenever it starts strengthening
* JPY - they also don't want a strong reserve currency because it would tank their export led economy, plus Japan's debt and economy make the US look very healthy in comparison
* EUR - people remember the Euro crisis, and a lot of the fundamental issues with the currency were just papered over. It wouldn't ake a lot for a new Euro crisis to happen.
* GBP - post Brexit, not that attractive, and not so long ago the whole Liz Truss debacle happened to the currency
* CNY - China flirts with the idea of a reserve currency from time to time but would much rather have the ability to impose strict capitol controls quickly
It's only in the last year or so that USD has started to look very wobbly.
Compared to CHF and EUR the USD was on a downfall for a while now, more or less Corona or the last trump era.
The new thing is that it's really getting worthless comparingly up to the point where it's not interesting anymore to keep any USD and no reason in sight to think it might get better
SDRs exist only on paper. Regular individuals or companies can’t deal in them.
Rather than thinking of it as demand for dollars, you could think of it as demand for US investments in general. The US is one of the better places in the world to invest. Why foreigners want to buy US tech stocks (for example) shouldn’t be a mystery.
but it is a demand for dollars. if germany buys oil from saudi arabia and they have to use USD to buy the oil, that right there is a demand for us dollars and not us investments in general
The US dollar was the global reserve currency in the 1960s but the US was running a trade surplus then.
Nixon broke Bretton Woods by coming off the gold standard, leading to massive expansion of the money supply. Lyn Alden has good analysis of this process https://www.lynalden.com/fraying-petrodollar-system/
Imagine having to tell the economy it can only grow as fast as a specific rare metal is mined for money to continue to make sense. The gold standard was a system breaking up by its inherent contradictions, as another poster has phrased it, when Nixon went off it.
> Under gold-backed fractional reserve there is no requirement that there be enough gold to back all the notes in circulation promising gold
What happens when foreign buyers want to withdraw gold and not hold "money" in an account?
Internally, gold-backed fractional reserve sounds reasonable.
This isn't correct. The gold standard caused a lot of problems with money shortages; in the 1800s they were called panics. The shortages powered William Jennings Bryan to the Democratic presidential nomination after his "Cross of Gold" speech. https://en.m.wikipedia.org/wiki/Cross_of_Gold_speech
> Imagine having to tell the economy it can only grow as fast as a specific rare metal is mined for money to continue to make sense.
It makes intuitive sense that the gold standard would have limited economic activity, but did it actually do? If the gold standard had been constricting economic activity, one would expect GDP growth to have accelerated after the gold standard was eliminated, but as far as I can tell that didn't happen.
The more I hear about this Nixon feller the less I like him. Seems like a real scoundrel.
Dollar bills under the circa pre-Nixon gold standard were IOU for gold, there was no need to have enough gold to cover them as it was a fractional reserve.
he may have had no choice - there are inherent contradictions in every monetary system - there is a reason they all collapse in the end.
Or so the Germans would have us believe...
Do you find Lyn Alden insightful? I remember studying her articles a few years ago on the inevitability of hyperinflation due to oil shortages, which never materialised.
There were no free floating currencies back in the 1960s nor open capital markets as we understand them today. Cannot really compare the two eras.
Remnants of the massive industrial effort of WW2 plus China/Japan had not entered the chat yet.
Plus one thing that was never really mentioned during the tariff bs where many American republicans demonstrated a total lack of understanding of what tariffs are and how they work is:
The fact that, yes, China makes iPhones and America has to import them. However that completely ignores the fact that China is making iPhones for _Apple_ and that whilst I'm sure the Chinese factories make a little profit, Apple's is making much much more on their huge mark up when selling iPhones across the world.
Of course those iPhones are imported directly from China to place of sale, say the UK. But who sees the profit? An American company. _Even though_ those imports would not have counted against America's exports specifically as far as I'm aware.
A lot of corporate US does not declare their earnings in the US, but in tax heavens, thus further skewing the figures.
Another alternative to a non-national global reserve is of course gold (or dare I say the B asset which must not be named)
The issue is that the US now wants to have the cake and eat it too. Trump wants the rest of the world to subsidize the US industry. It'll be interesting how this will pan out.
You say "interesting" but as a US resident, I say "terrifying."
Biden showed a great way to subsidize industry and catalyzed the biggest expansion of building factories in generations, in forward-looking sectors that will reduce the cost of energy for all future generations in the US, providing us security and reducing the chance of another inflation spike like that caused by Russia starting wars that threaten the energy supply.
All that nascent industry is at risk of being thrown away for being too "woke" all so that we can send all the fired NCI cancer research to factories for assembling iPhones. From pipetting to tiny screws may be slightly related job skills, but it's capturing the least possible value from a generation of highly trained workers...
The US isn’t forcing anyone else to use USD. People around the world use USD because they are confident it will help them buy products and services they want in the future.
This. Fundamentally, the USD is the global reserve currency because the US is seen by the rest of the world as the most stable entity able to guarantee the future value of its currency: It's militarily powerful enough to guarantee its independence, and legally predictable as a "rule of law" nation and a stable democracy. If you want to park your assets anywhere, the safest bet is US treasuries. Everything else follows from that.
Or because they designed they currency and economy to get there.
Then one orange guy took about 3 months to break the trust they built into their currency for many many years.
> The US isn’t forcing anyone else to use USD.
I disagree. The petrodollar is a thing.
20% of oil is traded in currencies other than the US dollar.
What kind of force is the US using to force oil sellers to only accept USD (assuming they only accept USD).
Are Canada and Russia and Iran only accept USD for their oil sales?
https://www.investopedia.com/articles/company-insights/08231...
> What kind of force is the US using to force oil sellers to only accept USD
Ask Saddam Hussein, Hugo Chavez, or Muammar Gaddafi
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> We literally murder people and bomb countries that even joke about not buying and using our worthless currency,
Citation needed
Seems at least equally probable (IMO far more) that was due to the whole invading Kuwait thing.
Carter ten years prior: "Let our position be absolutely clear: An attempt by any outside force to gain control of the Persian Gulf region will be regarded as an assault on the vital interests of the United States of America, and such an assault will be repelled by any means necessary, including military force"
Keynes's argument of the International Clearing Union and the associated Bancor was primairly concerned with the need to manually balance trade balances rather than rely on FX exchanges. That would be achieved via manually setting FX exchange rates to heavily punish surplus countries (which should be happening normally in FX but isn't for various reasons).
The US chose to maintain a reserve USD pegged to gold instead back when they were running a massive trade surplus, but with the collapse of Bretton-Woods the situation in many ways has inverted. In any case, there is increasingly call by many in recent administrations, from Trump's policy advisors to Biden's Katherine Tao to return to the proposals of the ICU. While I don't think Trump's attempt to rebalance trade while still having the US reserve currency will work, I also don't think the Americans are that attached to that prestige to be willing to give it up in order resolve global trade balances and at home. It's not difficult to deal currency freezes with the right friends if you really wish, the real sting of US sanctions has always being barred access to the lucrative US market.
Of course, in the event that the ICU emerges, it would greatly harm the interests of surplus economies like China, Europe, Vietnam, Japan, etc, hence why they largely support the status quo of the US reserve currency rather than changing it, because they've decided that the benefits of surpluses exceeds the benefits of a deficit as a reserve currency.