THE TRUTH ABOUT TRADE DEFICITS. (HINT: THE POTUS HAS NO CLUE HOW INTERNATIONAL TRADE WORKS.) THE REAL TRUTH AIN’T SO BAD.
The Author Rob will not belabor the foolishness of a nonsensical trade war with our trading partners. (Just as the Author writes this newsletter,
China announces the imposition of 3 billion in tariffs on 128US products, including pork and meat.*)
All the Author can add is that the executive branch should never be invested with enough power to unilaterally approve and pursue trade policies that Congress has not specifically approved. As cliché as this is, the Founding Fathers would roll over in their graves if they could see how the executive branch has usurped power from the legislature. But that is a topic for books and on other other days.
An article in Forbes Online from January 12, 2018, The U.S. Economy Is Booming, Which Is Why The U.S. Trade Deficit With China Grew In 2017, by Salvatore Babones, provides a good description of the US trade deficit with China and Hong Kong, and why the numbers present a positive picture, not click bait for economic nationalists.
The 2017 trade deficit with China and Hong Kong (part of China but often considered separately because of its advance Western-like economy) will likely reach $320 billion dollars. Writes Babones:
That means that the final 2017 U.S. deficit with China/HKG may be up 17%-18% from the $280 billion consolidated China/HKG deficit recorded for 2016. And it shouldn't worry anyone at all.
For a mature and growing economy, a trade deficit signals that there is more capital flowing into the economy than is going out. * *In essence, international investors are betting the money on the US economy. As Babones states, “international investors are looking for a piece of the action in the world's more advanced, most dynamic mature economy.”
The trade deficit must be offset, much in the style of double-entry accounting, by the “current account.” And because there is more capital flowing into the US economy than flowing out, this must be offset in the current account, which of necessity must book a deficit.
FROM A TRADE DEFICIT PERSPECTIVE, THE TRADE IMBALANCE WITH CHINA IS ONE OF THE LEAST OF OUR WORRIES
China is engaging in a massive international development campaign. It seeks to link China with ports in Southeast Asia, South Asia and Africa. It will also develop rail lines that will link China with Central Asia, Eastern Europe, France and the Netherlands.
This ambitious project, or more properly, a series of projects, is called the “One Belt-OneRoad Initiative,” or OBOR. There are two elements to this plan. One is the “Belt,” or high-speed rail. In that sense, it is similar to the China-Pakistan economic corridor. The “Road” is a series of modernized ports to accept massive amounts of container ship cargo.
There are many justifications for these projects. Political scientists and foreign policy analysts see it as an attempt to increase Sino political reach. Economists see several things. The initiative establishes many potential markets for China’s economy. And if the projects are successful, it will be an effective solution to China’s massive industrial overcapacity. And bringing this overcapacity online will assist China to bring more people from its depressed rural areas into thriving economic cities.
There is another angle. These projects, especially high-speed rail and shipping, are an attempt for these served by OBOR to adopt Chinese standards. There are many ways to look at the ascension of China. One is to adopt counterproductive tariffs, engage in trade wars, back out of international agreements and reject current plans such as the Trans-Pacific Partnership. This will only accelerate the ascension of China as the dominant world economic power. And we must also remember that declining world powers that do not effectively adjust to their new diminished status are more dangerous than wounded wolverines. Get the hint?
Desert of the Real Strategic Investments has already launched five investment products this year and were are far oversubscribed. So it may be a month or two before we announce the launch of our new products***
WE MAKE AND ENFORCE OUR OWN STANDARDS IN THE DESERT OF THE REAL!
*As the Author is a vegetarian, anything that hurts the animal flesh production industry is welcome.
* *For a weak third world economy, a large trade deficit signals a different status, a country that is struggling to make balance of trade-of-trade payments. But that is not the case with the mature and growing US economy.
***Or overcome comedy writer's block.
