The trade deficit is connected to the debt and the deficit.

[Woodznutz]

I started this thread because for some reason I'm not able to post replies in the other one entitled,

Can Someone Explain how we can Impliment Socialism and Still Enjoy the Benefits of Capitalism?​

The connection between the trade deficit and the debt and the deficit has been discussed for decades, long before Trump came on the scene. Those who don't understand this need to educate themselves.

National debt: The Connection between Trade Deficit and National Debt - FasterCapital

1. Understanding the National Debt and Trade Deficit The national debt and trade deficit are two interconnected economic concepts that play a significant role in shaping a country's financial health. Understanding these concepts is crucial for comprehending the complexities of a nation's...

fastercapital.com

How the trade deficit affects the national debt - Search Videos

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How Budget Deficits Grow Due to Trade Deficits | Coalition For A Prosperous America

Excessive imports siphon demand for goods and services away from American producers and drive the government to run a budget deficit to cover that gap.

prosperousamerica.org

 

[Mack The Finger]

I don't think about stuff like...just as long as my retirement checks come.

 

[cnm]

SS contributions are loaned to the treasury by law, for one instance. That has everything to do with government debt and deficit and nothing to do with trade balance.

 

[Woodznutz]

SS contributions are loaned to the treasury by law, for one instance. That has everything to do with government debt and deficit and nothing to do with trade balance.

The government pays interest on the money loaned to them by SS. This adds to the deficit.

"Meanwhile, Social Security pockets a healthy chunk of change each year from the interest earned on its "loans." Last year, Social Security collected $85.1 billion from the federal government in interest income, and it looks to generate quite a bit in the decade to come. Here's a snapshot of the Trustees' estimated net interest payments from the federal government to Social Security between 2018 and 2027 (per the intermediate-cost model):"

Here's How Much Interest Income Congress Owes Social Security Over the Next Decade | The Motley Fool

It's probably a bigger number than you realize.

www.fool.com

 

[task0778]

Trade deficits and government debt don’t directly cause each other, but they’re linked through a chain of economic effects. Here’s how it works in simple terms:


When a US import company agrees to a contract with a foreign exporter, US dollars are exchanged for whatever goods and services are exported to the US. The US Gov't has no part in this transaction.


The foreign export company can invest that money in US assets, either real assets or financial assets like gov't bonds. The US Gov't plays no part in this transaction either, and neither does the foreign gov't of the exporter.


IOW, gov'ts do not trade with each other. The US Gov't does not pay China or any other gov't on Earth for whatever the trade deficit is. Ergo, a trade imbalance does not add to the national debt directly.


Clearly, if the US imports more than it exports, then we have an aggregate imbalance of trade. However, the US Gov't has no legal responsibility to make up (pay for) a negative trade imbalance between any or all of every trade deal that transpires.


That said, a trade deficit can weaken certain industries in the private sector; unemployment can result, and sometimes for political purposes the US Gov't may take certain actions to boost the economy and protect certain industries for economic or national security reasons. These actions can increase gov't spending and thus increase the national debt indirectly, but they are not mandatory. That is why a negative trade imbalance may result in a higher national debt, but only if the US Gov't decides to intervene with whatever options they decide to employ.

... the budget deficit is determined by the tax and spending decisions made by Congress and signed into law by the President, regardless of how much American consumers and businesses buy from other countries.

Did the Trade Deficit Cause $20 Trillion in Debt? | Committee for a Responsible Federal Budget

2017-07-06-In a meeting with South Korean President Moon Jae-in, President Trump suggested that the national debt is caused by years of trade deficits.

www.crfb.org

 

[Admiral Rockwell Tory]

The government pays interest on the money loaned to them by SS. This adds to the deficit.

"Meanwhile, Social Security pockets a healthy chunk of change each year from the interest earned on its "loans." Last year, Social Security collected $85.1 billion from the federal government in interest income, and it looks to generate quite a bit in the decade to come. Here's a snapshot of the Trustees' estimated net interest payments from the federal government to Social Security between 2018 and 2027 (per the intermediate-cost model):"

Here's How Much Interest Income Congress Owes Social Security Over the Next Decade | The Motley Fool

It's probably a bigger number than you realize.

www.fool.com

So, what does that have to do with the trade deficit?

 

[Woodznutz]

Trade deficits and government debt don’t directly cause each other, but they’re linked through a chain of economic effects. Here’s how it works in simple terms:


When a US import company agrees to a contract with a foreign exporter, US dollars are exchanged for whatever goods and services are exported to the US. The US Gov't has no part in this transaction.


The foreign export company can invest that money in US assets, either real assets or financial assets like gov't bonds. The US Gov't plays no part in this transaction either, and neither does the foreign gov't of the exporter.


IOW, gov'ts do not trade with each other. The US Gov't does not pay China or any other gov't on Earth for whatever the trade deficit is. Ergo, a trade imbalance does not add to the national debt directly.


Clearly, if the US imports more than it exports, then we have an aggregate imbalance of trade. However, the US Gov't has no legal responsibility to make up (pay for) a negative trade imbalance between any or all of every trade deal that transpires.


That said, a trade deficit can weaken certain industries in the private sector; unemployment can result, and sometimes for political purposes the US Gov't may take certain actions to boost the economy and protect certain industries for economic or national security reasons. These actions can increase gov't spending and thus increase the national debt indirectly, but they are not mandatory. That is why a negative trade imbalance may result in a higher national debt, but only if the US Gov't decides to intervene with whatever options they decide to employ.

... the budget deficit is determined by the tax and spending decisions made by Congress and signed into law by the President, regardless of how much American consumers and businesses buy from other countries.

Did the Trade Deficit Cause $20 Trillion in Debt? | Committee for a Responsible Federal Budget

2017-07-06-In a meeting with South Korean President Moon Jae-in, President Trump suggested that the national debt is caused by years of trade deficits.

www.crfb.org

So, the $38Trillion 'national' debt is of no business of the government? It's a matter for the private economy to deal with?

 

[task0778]

So, the $38Trillion 'national' debt is of no business of the government? It's a matter for the private economy to deal with?

Let me be clear about I think 'national' debt is. It is the accumulated federal government debt that the private economy is not obligated to pay for, and has absolutely zip to do directly with the trade imbalance. Similarly, when a US import business agrees to buy something from a foreign exporter, the federal gov't has no obligation in that transaction either. Where did you get the idea that I said the national debt is not the business of the gov't? Perhaps I misspoke.

 

[Woodznutz]

Let me be clear about I think 'national' debt is. It is the accumulated federal government debt that the private economy is not obligated to pay for, and has absolutely zip to do directly with the trade imbalance. Similarly, when a US import business agrees to buy something from a foreign exporter, the federal gov't has no obligation in that transaction either. Where did you get the idea that I said the national debt is not the business of the gov't? Perhaps I misspoke.

My point, and that of the links I posted, is that the trade deficit, budget deficit, and national debt are interconnected, the connecting link being money.

It's like me giving my kids money when they have a money problem. It's not my problem but I'm the only one with the resources to solve it. Unfortunately, the government (the father) must borrow the money to help out his children. Then he must tax his children to pay for the money he borrowed to bail them out. Pretty screwy, eh?

 

[task0778]

Historical and comparative experiences offer many examples of budget and trade deficits moving in opposite directions. For instance, in the late 1990s the U.S. had budget surpluses, but still ran a trade deficit. Of the 35 OECD countries, only 8 have both types of deficit. About half have a surplus in one and a deficit in the other. Japan, Canada, and Australia, for instance, have trade surpluses but budget deficits.

Did the Trade Deficit Cause $20 Trillion in Debt? | Committee for a Responsible Federal Budget

2017-07-06-In a meeting with South Korean President Moon Jae-in, President Trump suggested that the national debt is caused by years of trade deficits.

www.crfb.org

Anybody wanna explain this? How can thus be true if there is a direct connection between trade deficits and national debt?

 

[Woodznutz]

Historical and comparative experiences offer many examples of budget and trade deficits moving in opposite directions. For instance, in the late 1990s the U.S. had budget surpluses, but still ran a trade deficit. Of the 35 OECD countries, only 8 have both types of deficit. About half have a surplus in one and a deficit in the other. Japan, Canada, and Australia, for instance, have trade surpluses but budget deficits.

Did the Trade Deficit Cause $20 Trillion in Debt? | Committee for a Responsible Federal Budget

2017-07-06-In a meeting with South Korean President Moon Jae-in, President Trump suggested that the national debt is caused by years of trade deficits.

www.crfb.org

Anybody wanna explain this? How can thus be true if there is a direct connection between trade deficits and national debt?

Trade deficits and other losses drain money from the economy. Only the government has the right to print/create money to backfill the shortage. The new money isn't just printed, it's borrowed via issuing of bonds, notes of indebtedness that accumulate and become the national debt.

 

[task0778]

Trade deficits and other losses drain money from the economy. Only the government has the right to print/create money to backfill the shortage. The new money isn't just printed, it's borrowed via issuing of bonds, notes of indebtedness that accumulate and become the national debt.

All of that is true but has nothing to do with any trade deficits. We spend money at Walmart or Amazon on imported stuff, right? So what? Where's the connection between that and the national debt? Who suffers? Where's the pain?

There are countries around the world that have budget surpluses and still run trade deficits. There are also countries that have a trade surplus and still run a budget deficit. I maintain that trade deficits have nothing to do with the national debt because that debt is solely a function of gov't spending that exceeds revenues. IOW, there is no direct link. I believe the gov't will overspend just as much with or without trade deficits. The gov't has no obligation whatsoever to pay for any and all trade deficits.

Some gov'ts spend money to subsidize certain industries or employ protectionist measures such as tariffs, quotas, and such. They say they're doing so to ameliorate a trade deficit(s), but it's really a political move that isn't necessary. There are other measures that can be done if needed. One can argue that a trade deficit indirectly leads to a larger budget deficit, but that is a political decision.

 

[task0778]

Didja know:

.... Alexander Raskolnikov, Wilbur H. Friedman professor of tax law at Columbia Law School, and CFR’s Steil write that one way to address the deficit with China is by amending American tax law.

Current U.S. tax law treats foreign investors in the United States, including Chinese investors, more favorably than domestic investors. The resulting influx of foreign capital contributes to the trade deficit. Raskolnikov and Steil write: “If the U.S. tax subsidy for the import of foreign capital were eliminated, Chinese investors would have less motivation to outbid Americans for U.S. assets and, by extension, less incentive to dump goods in this country in return for dollars.”

Though it would not be a silver bullet, amending U.S. tax law and eliminating subsidies for foreign portfolio investment could moderately reduce the deficit without the downsides associated with tariffs and other protectionist measures.

The U.S. Trade Deficit: How Much Does It Matter? | Council on Foreign Relations

Introduction President Donald Trump has made reducing U.S. trade deficits, which have expanded significantly in recent decades, a priority of his administration. He and his advisors argue that renegotiating trade deals, promoting “America First” policies, and confronting China and the rest of...

www.cfr.org

Countering China’s Trade Practices With Investment Tax Policy

Panelists discuss ending the U.S. tax subsidy for Chinese inward portfolio investment as a tool to shrink the trade deficit, as well as the potential economic and policy implications of this approach…

www.cfr.org