So much of this world passes our understanding. The U.S. has had TRADE DEFICIT with China for 30 years we are told, and in the telling, clearly intended to be upset by this. But, since our knowledge of such arcane subjects is limited, we aren’t. We have constructed a lifetime trade deficit with our supermarket, after all, without negative result.
What is a trade deficit? Simple and we suppose, a political construction of no real merit. Anytime two parties to international trading do not trade equal values of goods, a deficit develops. One side holds more of the other sides’s money while that other side holds more of the first side’s goods.. That is allegedly an evil though as said, we don’t see why.
Say we have paid a lot of our money to another country for its goods while it buys nothing from us. A 100% trade imbalance. What has really happened? The seller has obtained desired money from the buyer; the buyer has obtained desired goods from the seller. No harm, no foul, right? Purely voluntary, too.
We are supposed to deplore this as a trade imbalance since one side bought nothing from the other, just stashed money for the goods it shipped. We don’t get why this is supposed to be bad.
What is the custodian of our money going to do with it? He can’t eat it. All it is good for, is to buy stuff from its source. It has no other value. It is a claim on goods or services, no more. Whenever they are bought, those goods or services will be sold at a profit; the original buyer’s money will return to him with a gain.
So, why do folks become upset at “negative balances of trade” wherein goods don’t flow equally in both directions? We suspect that such complaints serve some political purpose; we cannot see an economic one. But there is much that we don’t know.
As we said at the beginning, we have a lifelong negative balance of trade with our supermarket but no harm from that. We see no difference. Maybe we’re missing something?
For now, we suspect that it’s politics, not economics. Perhaps you can explain it to us …