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Trade Deficits Tell Us Something

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The US trade deficit in goods jumped a solid $80 billion per year in 2018 to $878 billion, a net increase of 10% over 2017. This rather abstract figure is naturally spun to reflect either a rebuke of Trump and his policies or as a sign that the economy is particularly strong, depending on your perspective. From the point of view of China, it’s a sign that they might well be “winning” a trade war.

Is that what any of it means? The long answer is no, of course, but it begs the question as to what any of it actually does mean. It’s important to put the trade deficit into context and reach a deeper understanding of the flow of money around the world. The resulting analysis does show that there is a problem in the world, a fundamental imbalance, but does not tell us how much we should be worried about it.

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People’s Economics – Connection

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The world has been coming together for a very long time. Trade between civilizations has given each of them a peek into new worlds which dazzled and challenged them in turns. From the Silk Road of 2,000 years ago to the shipping lanes of today, trade has often defined how the world comes together.

As important as this has been, it has never been even or reliable. Trade is defined by people and their desires. Economic value is always what the buyer is willing to pay for something, and far too often the definition of things like money and credit has had a large role in how it works out. Contact between people brings more than physical goods, too – it brings envy, greed, curiosity and concern among many other emotions.

A world defined by people and their needs is a connected world. But those connections have to be at a human level more than at a money level if they are going to be sustainable. Connection in and of itself is one of the Five Points of the definition of People’s Economics for this reason.

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Trade Deficits – Bad?

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The nearly permanent US trade deficit is getting a lot of attention. Surely, it’s a bad thing to send so much money outside the US when it could be providing jobs to American workers, yes? The problem largely goes without saying, and is never actually discussed.

But are trade deficits really that bad? As with most things in economics, the short answer is no but the long answer is yes. Let’s discuss.

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Trade War Without Ammo

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The trade war is definitely on, no matter how Wall Street wants to deny it. Serious investors have downplayed recent events as part of a grand strategy, a negotiating tool that will all work out in the end. The reality, that there isn’t really a good strategy in place here but simply petty tactics, has not sunk in yet, at least in America. But the rest of the world knows better.

For the purposes of this discussion, the European Union will be diminished to Germany. After all, this is the economic engine that powers the continent right now, and Merkel’s leadership is critical. Where is Germany going? The long and short of it, the strategic and the tactical, is to the east. This response is proof enough that there is no US strategy which makes any sense.

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Distraction

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On a hot Friday before a holiday, it’s hard to stay focused. In this chaotic world, it’s usually hard to stay focused on anything, especially with supposed “leaders” relying on distraction and buzz rather than anything of substance.

So let’s play a little game of speculation. I have little to back up anything I’m about to say here, other than the simple and obvious fact that where the US has the attention span of a caffeinated squirrel, China is always playing a long game. As a colleague once told me, “China has had a bad 200 years, but we think the next 200 will make up for it.”

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