Problems with the US trade deficit

Discussion in 'Politics' started by vickicho, May 16, 2007.

  1. vickicho


    Since the US dollar is weakened, does it imply that the trade deficit of US has been improved? If yes, to what extents it is? If no, what are the reasons behind it?

    Compare the US balance of trade data of the recent year, the answer is very clear: the trade deficit does not appear to be decreased, instead of getting smaller its keeps increasing.

    Fall in exchange rate will generate a positive impact to the balance of trade of one country. If the US dollar has been devalued, by the theory, US goods will be more valuable because the interest-bearing assets will become more attractive, it will attract more investors. US will have buy less of the foreign goods which indicated that imports will be decreased. But the fact is, it doesn’t seem to be happening. Does it violate the economic theory?

    Perhaps, it may be too assertive to say so. By looking at the trading partner of the US, it will give us the insight to the problems of the huge trade deficit.

    The major trading partners of US are Canada, Mexico, Japan and China, therefore the exchange rate is the major factors against these countries. Although US dollar depreciates against Yen and Canadian dollar, it still remains strong against Mexican and Chinese currencies. Evidence shows that the imports from Japan decrease significantly while the imports from Canada increase as the exchange rate decreases. This is due to the fact that most of the Canadian goods are necessities, also as there are a series of firms in America are having long-term contracts with firms in Canada, thus the lock-in contracts will restrict them to decrease the order size that they placed.

    Because the US dollar only depreciates against some major foreign currencies like Yen and Euro, but not against the major trading partners. Overall, only the imports of Japanese products had decreased, while the imports from other three major trading partners remain very high or even keep rising, so the US trade deficit is still very large without any incentive to decrease.
  2. Our trade partners will never allow FAIR TRADE or FREE TRADE. If they did, they wouldn't be able to take millions of jobs away from us.

    We are only able to afford the imports because the Fed prints more IOU's up to hand out to buy them. If they try to slow the pace of printing a depression will result.
  3. LarryS


    We don't allow fair or free trade either...we simply preach it to countries that are not yet developed but once they become too competitive we promote "buy American" Maybe if American weren't crap (as in cars) or over-priced (as in many things) then we would buy it....
  4. We don't promote buy American. Who are you kidding? I haven't seen a "buy American" ad or promotion since the 70's.

    Remember Wal-Mart used to have "buy American" stuff everywhere back when Sam Walton ran it? Now, 75% of what they sell isimported, mostly made in China. That's $150 billion of the trade deficit right there.

    A democrat will be elected in 2008 as a result of China's trade disaster, and then a trade war will result, IMO. It will be worse for them than us because we are already dead meat.
  5. tinmanet


    What planet did that theory come from?
    Interest bearing assets like US bonds are increasingly LESS valuable as the dollar declines.

    US goods are more attractive to foreigners since they're CHEAPER but that only makes trade balance worse if we're already in deficit unless we either increase exports and / or decrease the now more expensive imports IN GREATER PROPORTION to the fall in exchange rates.

    Not much chance of that until the US consumer cries uncle.
  6. Humpy


    Management in the West have been over-paying themselves for decades. Then they expect the workers to try and exist on the minimum wage. The minimum wage is such a miserable small amount many workers need at least 2 jobs just to exist.
    Now that there is a bit of stiff competition from some countries with systems unlike themselves the whole rotten system is beginning to come apart at the seems.
    Its either a team effort where everyone in the company gets a reasonable ( not equal ) share of the cake or goodbye Old Capitalism imho
  7. You're gonna need 4 minimum wage jobs to survive by the time China is done with us.

    LOL, luckily inflation is under control as long as you don't need to buy food, pay tuition, buy stamps, pay for healthcare or buy fuel to get to work.
  8. atozcom


    We buy the cheap Chinese stuff with our cheap dollar. The Chinese buy our treasury bond with the cheap dollar that they made from us. They then come back to buy the expensive stuff they cannot make or don't know how to make. (Jumbo jet plane...)

    Consider all the cheap stuff that we buy from China that we no longer make here, we still have the lowest unemployment rate in history 4.4%. EU country unemployment rate is much much higher. What are we bitching about?

    The real problem comes when we don't buy Chinese stuff. Our business slow down. The retail layoff workers. The shipping, trucking company lay off workers. The importing company layoff workers. The U.S. unemployment goes up. The Chinese factory stop shipping and stop producing. They lay off factory workers. They export company lay off workers. Unemployment go up in China. They stop buying U.S. treasury bond. That makes the U.S. interest rate to goes up.

    The trade deficit is not a problem. They finance our debt. They improve live of the Chinese people. We got cheap Walmart goods.

    It is a win-win for the U.S. and China.
  9. Cesko


    Absolutely correct!!
  10. Correct, but only until the pig is sufficiently fattened.
    #10     May 20, 2007