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(closed) Trade Deficit

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Forum topic by DKV posted 08-07-2012 05:48 PM 797 views 0 times favorited 5 replies Add to Favorites Watch
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DKV

3940 posts in 1971 days


08-07-2012 05:48 PM

I found this article to be very interesting.

Does it bother you that you run a trade deficit with your grocery store? You probably bought thousands of dollars’ worth of food from it over the past year without selling anything back. Sound nonsensical? Worrying about the nation’s trade deficit is just as silly. And yet, Senate Majority Leader Harry Reid (D-Nev.) says the trade deficit costs the country millions of jobs. Presumptive Republican presidential nominee Mitt Romney slams President Obama for “doing nothing to address” the gap.

Stores sell you things that are uneconomical to make yourself, for which you pay money that you earn by working. It simply doesn’t make sense for you to produce everything for yourself — your time is much better spent doing those productive activities for which your skills are better suited. In fact, you benefit from that deficit, because you need groceries. We all have lots of trade deficits in our lives we don’t worry about, because we know they benefit us. So why is it that we think a U.S. trade deficit justifies bureaucratic meddling in business affairs?

Buying more products from China than we sell them is not a sign of economic weakness; we expect rich countries like ours to be able to purchase more goods than can developing countries like China. Our ability to buy inexpensive foreign products is critical to economic health — consumer spending makes up a majority of our GDP. But politicians demonize it by pointing to the trade deficit as a supposed sign of economic weakness. In fact, it can be exactly the opposite.

A trade deficit indicates consumers are buying enough products to keep growth humming along. When the trade deficit shrinks, it is usually accompanied by a recession — as happened in 1973, 1980, 1991, 2001 and 2009. We ran sustained trade surpluses during the Great Depression. Imports also help our economy in other ways. When we buy foreign products, overseas investors put their dollars right back here, creating millions of jobs. One of the most important elements in our economic recovery right now is our $4 trillion in net foreign investment — by far the largest in the world.

To worry about a “trade deficit” is to ignore the fact that many goods are truly global creations, which makes traditional measures of trade inadequate. For example, suppliers from lots of countries have a role in creating the Apple iPhone. The research and design happens in Silicon Valley, a dozen component parts are produced in America, Germany, South Korea and Japan, and it’s all sent to China to be assembled. The Chinese contribution to this global supply chain is just 3.6% of the final value, but the way the trade statistics tell it, the iPhone is a “Chinese” import. What should be considered the greatest contribution — the American vision and technological architecture that made the iPhone possible — counts for zilch.

Worldwide manufacturing is a natural function of a complex global economy that minimizes costs at every stage of the production process. Similar supply chains exist for hundreds of other products. World Trade Organization Director-General Pascal Lamy has estimated that accurately measured trade statistics would halve our trade deficit with China. This discrepancy exists because in a high-tech economy like ours, the production of ideas is crucial, but ignored by bean counters.

In addition to helping to make our gadgets affordable for everyone, foreign manufacturing also gives American workers the latitude to specialize in high-tech fields — exactly what we need to compete in the global economy of tomorrow. By using flawed methodology, we disparage the very sort of business we should be trying to attract.

If trade deficits were a problem, the U.S. would have plunged into a permanent state of disrepair in the decades following 1975, the last year the country ran a surplus. Instead, we have experienced a threefold increase in manufacturing productivity, a ninefold increase in GDP and a sixfold increase in per capita income. It’s time for pundits and politicians to stop demonizing one of the most important factors in getting the American economy going again.Carter Lockwood is a research associate at the Competitive Enterprise Institute.Read more: http://dailycaller.com/2012/08/07/trade-deficit-is-nothing-to-worry-about/#ixzz22tSHnuM7

-- This is a Troll Free zone.


5 replies so far

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Sawkerf

1730 posts in 2535 days


#1 posted 08-07-2012 06:18 PM

That would be much easier to read if there were some paragraph breaks don’t you think?

-- Adversity doesn't build character...................it reveals it.

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DKV

3940 posts in 1971 days


#2 posted 08-07-2012 06:30 PM

Sorry Sawkerf, I’ll take your advice next time I cut and paste a post. I hope you read it even though the carry-on structure is difficult.

-- This is a Troll Free zone.

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DKV

3940 posts in 1971 days


#3 posted 08-07-2012 08:31 PM

Cleaned up and ready to read. I found the article very interesting and counter to everything we’ve been told and believe.

-- This is a Troll Free zone.

View Jim Finn's profile

Jim Finn

2417 posts in 2389 days


#4 posted 08-08-2012 01:03 PM

”... and counter to everything we’ve been told and believe.” This is why one must think for themselves and not have a single information/news source. This article is correct, as far as it goes. We need to also address the slowing of manufacturing in this country.

-- "You may have your PHD but I have my GED and my DD 214"

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Sawkerf

1730 posts in 2535 days


#5 posted 08-08-2012 02:45 PM

Ahh, much better. A very interesting point of view. I was surprised to see that the Chinese contribution to the iPad was such a small part of it’s actual value.

I think that a lot of people miss the point that a “global economy” is a logical extension of practices that began with the industrial revolution. 150 years ago, our industries saw the same basic situation as raw products were turned into consumer goods. In those days, however, it was inter-state instead of inter-national. In the far distant future, it might be inter-planetary or inter-galactic.

As far as Jim’s statement about “addressing” the slowing of manufacturing in this country, I think that it’s already been “addressed”. It’s all about economics. Companies have to find ways to manufacture their products at a cost that allows them to be competitive. If they can’t (or won’t), economic Darwinism will eventually drive them to extinction.

-- Adversity doesn't build character...................it reveals it.

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