Better Understanding Trade; How Surpluses and Deficits affect National Budgets and Economies

Discussion in 'The Thinking Cap' started by The_Phalanx, Nov 15, 2016.

  1. The_Phalanx

    The_Phalanx Man with the Pointy Sticks Admin DiploGuard Map Maker

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    Apparently I can't put the full title I'd want -- Better Understanding Trade; How Surpluses and Deficits affect National Budgets and Economies

    I'm sure a few of you were hoping for me to post sort of primer that we could use as a springboard for this discussion, but in actuality I don't have one. I am, however, looking for one (or many), that we could then use to start a real discussion on this.

    During his campaign, Trump repeatedly suggested that the trade deficit was a hindrance to the American economy. However, I'm quite sure that Trump was blowing air out of his ass in hopes that such statements would be what his base would be interested in hearing. That doesn't mean he's necessarily wrong. But to know that would mean understanding this issue better and opening it up for discussion for this in favor of tightening trade regulations and institution a more mercantile policy or maintaining and expanding free trade.

    Doing my own research on the matter isn't that great as my google-fu has always been lackluster. I'm either getting a grab back of articles from the 80s when America's trade deficit first came into being or I'm getting articles about budget deficits which isn't the same as a trade deficit.
     
  2. Lawrapous

    Lawrapous

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    Hmm I dunno about the history but I can find out about How Surpluses and Deficits affect National Budgets and Economies.
    But from my understanding (I could be wrong here) having a surplus when it comes to Economics and budgets is bad cause that is money not being spent. The way the economy works is like a wheel. It just keeps going round and round and the more you add in the bigger the wheel. And if you have a surplus your stopping the wheel and you aren't progressing.
    As for Deficits am not sure but I can find out in maybe 12hrs haha.
    I dont have a source to link other than my Misses works in a bank and her big brother is like quite far up the chain in a bank. When I say bank I don't mean the person that you go get money from retail haha.
    That's how they explained why a surplus is bad to me awhile ago.
     
  3. The_Phalanx

    The_Phalanx Man with the Pointy Sticks Admin DiploGuard Map Maker

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    I'm not talking about a budget surplus or deficit, but a trade surplus or trade deficit. There's a pretty big difference.
     
  4. ABDeL

    ABDeL Site Advisor DiploGuard Our Creator

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    "Trade deficit" is a socialist term meant to give governments justification to make an individual's right to make voluntary contracts illegal, or difficult, on the basis that those contracts have adverse effects on other members of a collective.

    Sam in the US produces a car for $50. Zhou in Japan makes a better car for $40. I am better off purchasing Zhou's car from Japan and Zhou is better off with the $40. The market, society and standard of living are better because of this deal, as better products are being made at a lower cost, and the companies that make those better products are earning the capital over companies that make the inferior ones. This forces inferior companies to improve or leave the market.

    Trump decides that Zhou will face a 50% tariff if he chooses to sell his car in Japan. Now Sam's car is the cheaper car, but he hasn't done anything to make his car better than Zhou's. Standard of living stagnates as products that are better have their cost artificially inflated to protect American producers. American producers produce lower quality products as competition decreases.

    And this is why "Fair Trade" is a terrible idea. Instead of imposing tariffs, governments should look for methods to increase entrepeneurship and decrease red-tape which would reduce overhead and start up costs. Protectionism only ends up increasing costs, and reducing innovation at the expense of keeping blue collar workers employed.
     
    Last edited: Nov 16, 2016
  5. Ordo

    Ordo Lore Judge

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    No, its just a term for negative trade balance between specific countries. Of course trade deficit has different causes in different countries.
     
  6. ABDeL

    ABDeL Site Advisor DiploGuard Our Creator

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    It carries the implication that having negative import-export is a bad thing that should be corrected by government intervention.
     
    Last edited: Nov 16, 2016
  7. The_Phalanx

    The_Phalanx Man with the Pointy Sticks Admin DiploGuard Map Maker

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    So I already understood this example. From the sound of it, this has no direct effect on neither the US nor Japanese government budgets. But when listening to pundits, they imply that there are direct effect.
     
  8. ABDeL

    ABDeL Site Advisor DiploGuard Our Creator

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    The direct effect is reduced employment opportunities from the blue collar working classes. This increases government dependency in the form of welfare. Less working people + Less corporate/business profits = Less government revenue from taxation.
     
  9. AxelTheGreatest

    AxelTheGreatest Heda

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    Lol.
    That's what I have always learned at school.
    Isn't it so that having more import than export, like the US has, forces countries to take loans to compensate their shortage/deficits on their current account?
    Teach me.
     
  10. ABDeL

    ABDeL Site Advisor DiploGuard Our Creator

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    Just as locking someone in a room and making them listen to Barney's "I love you" 50 times, doesn't make them want to listen to Barney, preventing entrepeneurs from being able to produce their products in a certain country doesn't make them want to produce in the country you're forcing them to produce in.

    In some cases where it makes sense, companies want to produce in the US. The Toyota Camry is one of the few cars that is 100% produced in the United States. And its not because Toyota loves the US, its because it fits their bottom line. It costs less to produce the Camry in the US than it does to produce and ship from Japan. And that's what the US can do instead of placing trade barriers.

    There was a time in our history when the US paid the highest wages to its blue collar workers but still produced the cheapest products. And thats because American workers are, and remain, the most productive in the world. But regulations, pro-union legislation (where it makes absolutely no sense), are pushing businesses towards automation and outsourcing, which is hurting American blue collar workers. And its not hard to see why when the average UAW worker earns $75 an hour in salary/benefits.

    http://www.dailywire.com/news/3999/note-trump-and-sanders-supporters-4-reasons-ben-shapiro#
     
  11. Feanor

    Feanor Member Liaison Officer Global Moderator

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    This assumes that we're one big happy global economy-society. Which isn't necessarily true. Nation-states are not out for the optimal outcome for everyone. Only for their country. You're better off purchasing his car. But what money do you purchase it with? By spending your money outside the US economy you're taking away from US manufacturing and giving it to Japan. Currently the US makes up the difference by printing dollars. Which is problematic. Up until now, other countries have accepted dollars happily, and stashed them away in currency reserve funds. But this sort of imbalance can't continue forever. Eventually buying less US goods will destroy the economic base (this may already be the case depending on who you ask) and countries faith in the dollar will decrease. The last financial crisis already sparked discussions of alternate reserve currencies. And a number of countries have transitioned from using collars in bilateral trade to using their own national currencies. So far this is a small thing but in the medium term this will mean that countries will be less and less willing to accept unbacked paper backed merely by the willingness of the US to buy stuff. It will eventually destroy the US consumer base, driving down buying power, and probably annihilating much of the US middle class.
     
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  12. Feanor

    Feanor Member Liaison Officer Global Moderator

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    Basic technological and economic reality is pushing companies towards automation and outsourcing. The truth is that there will come a moment when automation becomes to cheap, that human labor will no longer be in demand at anything close to a living wage. And as long as people are willing to live in dirt huts and work for the price of a bag of potato chips a day, no legislation will ever make US labor more attractive.
     
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  13. MatthewB

    MatthewB

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    Balance of trade is useful for seeing how competitive a country's economy is. I personally think a lot of people make a bigger deal of it than it really is.
     
  14. Lawrapous

    Lawrapous

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    Right I talked to the misses. I was kinda wrong about surplus right method wrong way of it putting. It Also budget and trade can be put the same way. They work with each other and affect each other.
    Generally if you have a surplus when it comes to trading you export, yes. If you can't export it you have too much of it. Which means you have to either close things down or sell dirt cheap. China has this problem currently and no they aren't taking over the world. Currently they are pegged against the dollar and goinf to default cause they can't get rid of all their trade.
    A deficit is what the UK always does and has. It's not bad in fact when done right it's good. They need x but they can't produce all of it. So to get x they import. (They also export but it's not much Compared to most)
    Problem being it doesn't always go to what its supposed to. Which happens as long as it used.
    But as a country progresses they export less and do that wheel thing. As I said it's the same as trade.

    I would say this is a good thing. Developing countries need to have those jobs to make things. So while the US n such become more automated the labour moves elsewhere. However they need people to tend those machines and make those machines and when low level jobs close new higher jobs appear. Like IT jobs. Administration jobs. Alot of backroom jobs open up and the pay increases.
    Also having a living wage drives efficiency. Companies don't want to spend alot more because to pay bob and bill cause they have to so. They move or axe bob or bill which is a shame but then bill moves on to another one or studys and gets another new job. In theory.
    I wouldnt say it kills the middle class. If anything it's build the middle the class and although labour jobs in us n UK aren't attractive our poverty is 10 times better than it used to be thanks to the moving economy and importing trade.
    I would need to talk to the brother which won't happen for ages since he is generally at the fore front of trading.
     
  15. Feanor

    Feanor Member Liaison Officer Global Moderator

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    Good for whom?

    He says it better then I can.



    Uhuh. Tell me about the socio-economic trajectory that the US middle class is on. ;-)
     
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  16. Thurr

    Thurr DiploMVP

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    Feanor
    Artificially holding back creative destruction will only increase the impact of the change and increase the length of the transition phase. A free market will allow businesses to die and other businesses to replace them; even if this is tough on the current population.

    Off-topic
    Will a robot take my job test:
    http://www.bbc.com/news/technology-34066941
     
  17. Feanor

    Feanor Member Liaison Officer Global Moderator

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    It's a complex conversation. Lengthening the transition phase could give a state more time to prepare and adjust. Historically it's been change, then reaction. But perhaps we can proactively prepare for this one, since we can definitely see it coming.

    EDIT: That test is interesting but it's very direct. It doesn't take into account that with a decreased workforce, for example, the total number of HR management positions will also shrink, even though the chances of the position itself getting automated are very low. So while a bus driver is fucked, HR manager in a transportation company is also fucked. Even though a robot can't do his job.

    EDIT2: It also, strangely enough, assigns a low risk of automation to bus drivers. I have to question this study.
     
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  18. Ordo

    Ordo Lore Judge

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    To be fair we do know this will happen and we have known for decades, its just a matter of elected officials ignoring it.
     
  19. ABDeL

    ABDeL Site Advisor DiploGuard Our Creator

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    As I mentioned, companies will produce in the US if it makes sense to do so, just with Toyota sourcing its parts from US manufacturers and using US labor to build the camry. The most American produced car isn't an F150 or a Dodge Ram, its a Toyota Camry. When companies can hire US labor and be profitable, they will continue to do so.

    The solution isn't to build an artificial barrier to trade, the solution is to reduce the power of public sector unions, enable companies to hire non-union labor, reduce market restrictions and regulations. This will allow businesses to compete, reduce production costs. It may be more expensive to produce in the US, but as I mentioned before, historically, US workers were paid the highest wages but produced the cheapest products, because their wage matched their productivity.

    In terms of capital leaving the US, most of this capital ends up coming back in the form of investments, but this phenomena can be reduced by the solutions I've mentioned.

    In a capitalist system, labor should be viewed as a commodity that is bought and sold. When the supply is high (thanks illegal immigrants), price goes down. When the price is high, demand is low (thanks minimum wage). If government really wants to bring back jobs, they'd just get out of the way, let companies hire their own workers, let workers determine their own wage with their own productivity, and thats how jobs will be brought back to the US. Ultimately the cost of shipping offsets the cost of hiring a more expensive American worker.

    Automation will increase but I think what will ultimately happen is that people will have shorter work days, just as the industrial revolution meant that wives and children didn't have to go to work and Dads could earn an income which would feed a family by themselves. Human interaction with machines will still be necessary for the forseeable future, but certain sectors of the economy will become obsolete.
     
  20. The_Phalanx

    The_Phalanx Man with the Pointy Sticks Admin DiploGuard Map Maker

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    Abdel pls.

    Guys I'm enjoying reading your posts, but I want for people to remember that this discussion is about trade, not about the eventually Automation. So let's not get too far off topic with that.
     
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