Let’s begin with some basics:
Trade deficits must be financed. A country simply cannot have a trade deficit unless private or government investors are willing to finance it. This is not simply an accounting convention – it is real debt.
[Reposted from Forbes | Mike Collins | January 15, 2015]
Normally trade deficits are self correcting because as the deficit grows the country’s currency usually begins to decline in price in the world market. This makes exported goods less expensive and foreign goods more expensive and trade is supposed to balance itself. In the case of America this balance is not happening because many of our trading partners have figured out how to manipulate their currencies to keep the dollar value high so that they can continue to increase our imports. China and Japan are the biggest manipulators but Hong Kong, South Korea, Taiwan, Switzerland, Singapore and Malaysia are also currency manipulators.
In an article by Dan Dimicco, chairman emeritus of Nucor Corporation, he says, “National income accounting makes it clear that gross domestic product is the sum of four factors: consumption, investment, government procurement and net trade (exports minus imports).That’s net trade — not gross trade. In other words, net exports increase our economic size while net imports shrink it.”
He goes on to explain, in 2013, net trade subtracted about 3% from our economy (because imports exceeded exports). This shrinkage is cumulative, compounding year after year.” In the case of America we have had trade deficits for 39 years and it is now more than an $8 trillion debt.
Surveys show that the average citizen understands the importance of the manufacturing sector and manufacturing jobs. Therefore any good news about manufacturing and job growth gets a lot of play in the media.
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