If you would listen to President Trump and his concern about the “trade deficit”, you do know that he is only talking about ONE side of the equation right? He is only addressing PART of the issue which indeed is a symptom of something much bigger. This diversion has made everyone (well almost, since those that accomplish critical thinking do a little digging before they believe politicians) think that protectionist policies are the path forward. Sanctions need to happen to make America great (again).
Well, if you look at the chart above, you will see that the trade deficit is not something new. Walter E. Williams, my favorite economist, points out some “Economics 101” to help one understand what is really going on:
When we discuss international trade and balance of payments, there are two types of accounts. There is the current account, which includes goods and services imported and exported and receives the most political attention.
Typical Walter, he is able to place this scary ‘trade deficit’ in real everyday terms:
How much of a problem is it when there is a deficit, or a negative imbalance, on current accounts? Let’s look at it.
I buy more from my grocer than he buys from me. Our Department of Defense buys more from General Dynamics than General Dynamics buys from our Department of Defense. With just a bit of thought, one could come up with thousands of examples in which one party buys more from another than that party buys from it — creating deficits in current accounts. But a current account deficit is always offset by a surplus somewhere else.
So that “somewhere else” is what no one is talking about. Walter lays it out for all to see (who will consider a thought before believing it):
That somewhere else is known as the capital, or financial, account. This account consists of direct foreign investment, such as the purchase or construction of machinery, buildings or whole manufacturing plants. The capital account also consists of portfolio investment, such as purchases of stocks and bonds. In our capital account, the U.S. has a huge surplus with China … In other words, Chinese people are investing more money into the U.S. — in the forms of home and factory purchases, stocks, and bonds — than Americans are investing in China.
So what has the foreign investment done? Well, some good for sure but also some troubling aspects as well … you determine:
It turns out that foreigners own $30 trillion worth of U.S. assets, such as stocks, Treasury bonds, manufacturing plants and real estate. One of the reasons that foreigners hold so much U.S. capital is that our country is one of the world’s most attractive places to invest. Secondly, our capital markets, unlike our goods markets, are open to foreigners. Foreigners can buy and sell any U.S. asset in any quantity, except in cases in which national security is an issue. One of the troubling aspects of foreign confidence in America is that foreigners invest so much in U.S. Treasury bonds. That in turn gives the U.S. Congress greater latitude to engage in profligate spending. Japan owns $1.1 trillion worth of U.S. Treasury bonds, and China owns $1 trillion.
Yes, these foreign countries can pull the rug out at any time. The only thing preventing that is the US Empire (bully) has this huge military and deep state that it decided after WWII was to be the main thing at the expense of free trade and peace around the globe. 70 years of “prosperity” at the expense of selling out our future as well as the future for our kids and grand-kids with all this debt in every direction.
So this point in time is all that Trump wants you to see:
With this he can justify his protectionist trade policy that will have some winners (probably not you) and some losers (probably you):
What about President Donald Trump’s call to reduce our current account trade deficit? By the way, we know that we’re being deceived when a politician talks only about the current account deficit, without a word about the capital account surplus. If foreigners sell us fewer goods, they will earn fewer dollars. With fewer dollars, they will be able to make fewer investments in America. But that’s fine with politicians. The beneficiaries of trade restrictions are visible. Tariffs on tires, clothing and electronics will mean more profits and jobs and more votes for politicians. The victims of trade restrictions, such as people in the real estate market and other areas where foreigners are investing, are less visible. Last year (2016), Chinese citizens alone purchased record amounts of residential and commercial real estate, bringing their five-year real estate investment total to more than $110 billion
Since this article is over a year old, you do know that the housing bubble in the highest growth regions started to pop this summer, no doubt to less Chinese investment in housing.
So this brings me to another attribute of this nation’s predicament, its reliance on the “bully technique” to maintain relevance in the global political arena from ‘The Burning Platform’ article called “Can America Fight Two Cold Wars at Once?” by Pat Buchannan:
Kim Jong Un, angered by the newest U.S. sanctions, is warning that North Korea’s commitment to denuclearization could be imperiled and we could be headed for “exchanges of fire.”
Iran, warns Secretary of State Mike Pompeo, is testing ballistic missiles that are forbidden to them by the U.N. Security Council.
Turkish President Recep Tayyip Erdogan has warned that, within days, he will launch a military thrust against U.S.-backed Kurdish forces in northern Syria, regarding them as allies of the PKK terrorist organization inside Turkey.
Vladimir Putin just flew two Tu-160 nuclear capable bombers to Venezuela. Ukraine claims Russia is amassing tanks on its border.
This is the very real scenario that the US faces, because instead of focusing on free trade especially since 1991 when it emerged as the only superpower in the world it decided:
First, by intervening militarily and repeatedly in a Mideast where no vital U.S. interest was imperiled, and thereby ensnaring ourselves in that Muslim region’s forever war.
Second, by extending our NATO alliance deep into Eastern Europe, the Balkans and the Baltics, thereby igniting a Cold War II with Russia.
Third, by nurturing China for decades before recognizing she was becoming a malevolent superpower whose Asian-Pacific ambitions could be realized only at the expense of friends of the United States.
You might ask, what does trade have to do with foreign policy. Well I consider these issues linked, just like fictional character Benjamin Martin said in the movie “The Patriot” (2000):
Lieutenant General Cornwallis: Now we come to the matter of specific targeting of officers during engagements. You must know that in civilized warfare, officers in the field must not be accorded inappropriate levels of hostile attention.
Benjamin Martin: To your opinion, what are appropriate levels of hostile attention?
Lieutenant General Cornwallis: Colonel, imagine the utter chaos that would follow from leaderless armies having at each other. There must be gentlemen to command, lead, and- and, where necessary, restrain their men.
Benjamin Martin: Restrain them from, say, targeting civilians. Women, children and such.
Lieutenant General Cornwallis: That’s a separate issue.
Benjamin Martin: No, no. I consider them linked. And as long as your soldiers attack civilians, I will order the shooting of officers at every engagement. And my men are excellent marksmen.
While Pat Buchannan goes on to imply that the US created a monster in how China behaves on the world stage and how this trade imbalance would be “suicidal appeasement”, I disagree.
The sooner the US Empire returns to that of a republic that desires to trade with other nations in peace instead of manipulating the world’s trade with the threat of war, and treat Russia and China as peers, the sooner the US can deal with its own economic hemorrhaging at home, shrink “defense” spending, end the FED and re-tool the US towards an entrepreneurial zone that CAN compete on the world’s stage with reduced regulations and reduced government spending.
I doubt that this boomer generation of corporate and government (did I just stutter) workers can make this transition, but maybe it is the next generations that can lead us through this very rough patch.
-SF1