Wednesday, March 30, 2016

The Trade Deficit Isn't a Scoreboard

This article is a little bit lengthy but I thought it gave great insight to what the trade deficit is all about, as well as what Donald Trump thinks about it. Not only that, but the example of CarNation and BananaLand, I think, is an easily understandable metaphor. I also thought the sentiments on the US dollar having a global prominence is a great point because thinking back to 2008 - not only did the US economy crash, but the effects were felt all around the world. Do you all agree that part of what makes the United States powerful is the global prominence of the dollar?


  1. Another point is that the US is in sole control over the dollar. That's especially important after the creation of the euro. There are very few consistently trustworthy currencies which only come from the central bank of its home country. The pound and the yen are the only other examples I can come up with but I wouldn't be surprised if there were more. When looking at the struggles of countries on the euro compared to the UK and US you have to wonder if this played a part in it. It certainly made quantitative easing easier. Japan has had its struggles obviously but those go way back before the financial crisis. I think that the combination of the power of the dollar, the "safe haven" status of the US, and its ability to easily do quantitative easing made the financial crisis much less horrible than it could have been. Just ask Spain and Greece.

  2. It seems very difficult to determine if having a trade deficit can have net gain or loss of jobs for a country.

    On one hand in a hypothetical world, if the United States determines that Japan is better at building "widgets" perhaps they may only import widgets from them rather than domestically producing them. In return, Japan would import "gadgets" from the United States. As a result, job are made in different industries in both countries.

    However, international trade is very complex. There are political, social, tax, and other consequences that need to be considered. Although I am skeptical that Trump's tariffs would increase jobs in the United States, I am still unsure if complete free trade would result in more jobs either.

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  4. I feel that the trade deficit is a very interesting dilemma, and can have positive and negative repercussions. For example, in the case of the U.S, a trade deficit can signal economic health because consumers and businesses are saving money by purchasing cheaper foreign goods. Also as mentioned in the NYT article the presence of trade deficit also mean that the U.S economy is more likely to attract overseas investments. These factors can cause the trade deficit to actually increase during times of economic growth, which makes it even more difficult to determine if a trade deficit can have a net gain or loss for jobs.

    Also I think that Spencer brings up an interesting point, in that unlike the majority of other currencies, the U.S has sole control of the dollar. In addition it is a global reserve currency, which is why it is so powerful. If the trade deficit were to decrease, international companies that rely on the dollar to make trades and deals, may no longer be able to.

  5. Very true, the dollar holds much weight as the world's most traded currency, but its value has declined substantially and with the US in ever increasing debt, it doesn't seem to be improving. As previously stated, international trade is very complex, but when the US has global competition and huge trade deficits, jobs are often traded for cheaper goods. Our products made be more affordable, but with a shrinking middle class can it not be said that standard of living decreases as well?