don't blame the chinese!

Anthony P. Mueller tells us What's Behind the Trade Deficit Numbers? over at Mises.org.

...Trade deficits imply that foreigners lend the money to the United States with which the imports can be bought. The U.S. sends blips on a computer screen abroad and receives goods in exchange for consumption at home.

A blissful economic symbiosis exists between the United States, China, and Japan. The U.S. consumer wants his binge to never end. China needs the U.S. dollars earned from its trade with the United States in order to buy goods from other countries and pursue its economic development strategy. For Japan, the United States serves as the harbor for the savings surplus that it has accumulated.

Seen from an U.S.-perspective it may appear as if China (as it was said of Japan in the 1980s) was competing in an unfair way. It is said that China keeps its currency intentionally undervalued. But while the United States has a huge trade deficit with China, most other countries have a surplus in their trade with China.[ii]

The U.S. deficit with China is not so much the expression of superior Chinese competitiveness, but the result of a lack of competitiveness of the United States. China is reluctant to revalue its currency because the Chinese authorities are right to fear that a revaluation of their currency would lead to an increase of China’s trade deficit with the rest of the world, particularly with its Asian trading partners...

The U.S. trade deficit is an American problem. It is the result of insufficient savings at home and a widening budget deficit. In structural terms, the U.S. trade deficit shows that the productive capacity of the U.S. economy is too small relative to spending. Foreign financing allows the government to expand its expenditures without putting too large a burden on the taxpayer. This way funds are set free for private consumption...

...In the United States, as of now, the trade deficits have widened because the import of goods has been increasing. But what will happen when the trade balance is largely in the red because of U.S. interest payments on accumulated debt? When more and more of the trade deficit will come from interest payments and less from the import of foreign goods, the lifeblood of the trans-Pacific symbioses will dry up...

This is a very enlightening article which brings some common sense to the trade deficit issue and what it means. Those who reflexively state that the trade and current account deficits don't matter miss the point; it is a piece of information which sheds light on the macroeconomic situation our country finds itself in, and how it got there. As Mueller shows, the borrow-and-spend party will come to an end when interest payments take over goods importation as the principal component of the trade deficit.

Mrs. jmc would not have approved of my spending my few remaining minutes before going to the hospital with her for the delivery by making a blog posting, but fortunately she is taking a last-minute nap right now, so I'm off the hook (at least until she reads this...) Gotta go!