Stop Worrying About the Trade Deficit

George Mason University Economist Don Boudreaux says we should stop worrying and learn to love the trade deficit:

America's trade deficit -- in December reaching a near-record $64.7 billion -- is unfortunate, right?

Wrong. Contrary to popular opinion, this so-called "deficit" is a blessing.

Read the whole story and then enjoy a foreign-brewed beer this weekend.

Comments

[c]

Are the Chinese really taking their dollars and investing them in building manufacturing facilities in Utah? That doesn't seem to be the direction things are going in.

[Jaybird]

I have a trade deficit with Safeway.

I keep giving them money, they keep giving me groceries.

Something should be done!

[theCoach]

You should warn us about a link to an astroturfing site. I was expecting to go to a blog for an academic, not TCS. Once I saw where the link pointed to I did not read it, because of the corrupt nature of TCS and James "How much more wrong could I be?" Glassman.

[happyjuggler0]

Unfortunately his explanation was an oversimplification for teaching purposes. But the essence of what he said is true. As a practical matter the Chinese can have a trade surplus with the US without anyone from China investing a penny in the US. They can simply trade those dollars for Yen, or Euros, or for that matter, oil or lumber from outside the US.

Here is an equation I'd have loved to see him use: internatinal trade+ international investments+ government holdings of currency or bonds= zero. This is basically what he said though. A country that has a net trade outflow (trade surplus) also has a net investment outflow (creditor nation) exactly equal to the trade surplus.

Most people seem to think a trade surplus for your country is a good thing, but what if it means that on balance people prefer not to invest in your country? It is by definition impossible to have net exports and also have a net investment inflow.

The fact remains it is basically impossible to know 100% for sure whether the dog is wagging the tail or the other way around. Are we importing more than we export because our goods are not in enough demand, or is it that are people putting more investment money into the US than is being taken out for investment purposes because they see the US as the safest and/or most profitable place to put their money? I suggest looking in the mirror: where do you (as an American) put your money, in the US or overseas?

The US trade deficit could be a problem, or it could be the wagging tail of the investor dog that prefers to invest in the US than elsewhere.

[Jaybird]

One of the ways I've learned to deal with the trade deficit I have with Safeway is that I've outsourced my pizza production to Louie's Pizzeria.

[happyjuggler0]

Read the whole story and then enjoy a foreign-brewed beer this weekend

How about a Danish beer? Doubly piss off the Islamic Fascists, first by buying Danish, and second by imbibing alcohol like the infidel that you are.

[Isaac Bartram]

Get a can of Danish ham to go with that Danish beer. Wouldn't that make it a quadruple piss off.

[jp]

The term deficit just makes it too easy for the "something must be done!" brigades. Deficit sounds bad right from git-go. We should start calling it the investment surplus.

[pigwiggle]

Having been raised up in the great North West where, as far as I can tell, the only palatable beer on the globe is brewed; well, I'll be leaving that foreign swill to Nick.

[jroh]

Hey coach, when someone you disagree with is trying to get their point across to you, do you cover your ears and go "na na na na na na"?

[Timothy]

Pigwiggle: Try some Belgian beers, especially the trappist varieties and some true German Heffeweizens. I will say, however, that Widmer's Heff is the gold standard for American wheat beers.

[pigwiggle]

Timothy-

I?ve had a few trappists. They were either too sweet or tart; and holey crap did they have a punch.

Widmer was my first Heff, it?s ruined me for any other.

[Hakluyt]

Support Denmark! - http://supportdenmark.com/

[Bungalow Bill]

This is a serious question regarding national accounts.

Suppose a German dentist buys property in Florida as an investment over twenty years, amasses $1 million in assets. This would reflect as capital surplus/current deficit to the US vs. Germany.

After 20 years, he retires and permanently relocates to the surf and sand. Is there a correcting entry to the national accounts to reflect that these assets are now held by an American? Does it depend on whether he becomes an American citizen?

Like I said, a serious question that I'd like to know.

[Jim Walsh]

The "trade deficit" is just another scam that the neo-knownothings use to make others (and themselves)believe they're not racist demagogues.

[dflynn]

"But if those very same building materials are assembled by Americans into a factory situated and operated in, say, Utah and then bought by Chinese investors, we complain "

If that was the situation, the author would have a point. Can anyone tell me what we export? If we made something that foreigners wanted to buy, our import of oil would be meaningless too. But we don't.

The Chinese buy US Treasury offerings with dollars. The US government pays people 65 years old and over a salary for breathing. Those people pay dollars for Chinese goods. Where is this investment in America?

The American savings rate is negative for the first time since 1933. New federal debt is financed almost completely by foreign buyers. There is no investment into American enterprise; there is simply purchase of more interest bearing certificates.

[wayne]

"The "trade deficit" is just another scam that the neo-knownothings use to make others (and themselves)believe they're not racist demagogues."

What do trade deficits have to do with racism? Or are you just saying that the neo-cons are racist, regardless of economics?

[wayne]

This is not the place to say this, but I have to say it somewhere on H&R. That Valentine ad they are running works for me! That is one delectable lady!!

[wayne]

What DFlynn said. This GMU economist is either stupid, or a shill for somebody.

[Ed]

I'm not very bright, but when leftists and other Cro-Magnons assert that only Americans are entitled to a trade surplus, I happily pull the cork on a real Scotch, pry the lid off a nice Bulgarian Feta cheese, light up one of my favorite Dominican cigars and blissfully ignore the whole knuckle-dragging riot.

[happyjuggler0]

http://abc.net.au/money/vault/extras/extra5.htm

That is a link for a Milton Friedman interview about a decade ago in Australia. He covers a lot of subjects, but he is clearly not bothered by the trade deficit. Is he either stupid, or a shill for somebody?

dflynn, You cover a bunch of points.

First, Social Security. It is a coercive-Ponzi scheme, one that is totally irrelevant as to whether or not the Chinese or other foreigners buy US Treasuries. Addressing the Ponzi scheme will not have anything to do with foreigners.

The American savings rate is negative for the first time since 1933. It is entirely possible that the net investment inflow into the United States is a symptom of this. But maybe not too. If we had banned all cross border trade and investing a long time ago, we could still have a situation where our savings rate is negative. This is a serious problem, but it is not a trade problem or the fault of foreign investors. If anything, they are saving us from a near disaster by investing here to make up for our wretched savings rate. Thank them.

Can anyone tell me what we export? Lots of stuff, and more of it each year. Both imports and exports keep rising each year. If our "stuff" sucked, how do you explain our rising exports? The fact that we import more than we export is likely a function of the fact that people around the world want to get their money out of their country before a leftist seizes it. The US is seen as the least likely to "pull a Mitterand", like happened in 1981 in France.

There is no investment into American enterprise; there is simply purchase of more interest bearing certificates. Why is this bad, assuming it is true? If they refused to buy debt instruments and bought stocks instead while Americans bought all the bonds, how would this be better?

As near as I can tell, most people who have a problem with foreigners buying US securities either have a problem with our federal government debt, which is uncorrelated. Or their problem is: "but, what if they suddenly stopped buying our securities and stopped direct investments, and sold them instead? That would be a disaster." If they are doing so because our government puts into place wretched policies, then their divestment is a symptom of something horrible.

If our government isn't doing something horrible, then sudden divestment is the least of our worries. Basically we are saying: "Don't let them invest here, they might take their money out". Well, if taking the money out is bad, then putting it in is good, and we should encourage such action.

[NoStar]

Dr. StrangEcon
or How I learned to stop worrying and to love the trade deficit.

Nick,
Call me when you need help punching up the headlines.

[MikeP]

The Chinese buy US Treasury offerings with dollars. The US government pays people 65 years old and over a salary for breathing. Those people pay dollars for Chinese goods. Where is this investment in America?

The author was very explicit about the difference between trade deficit and government deficit.

The fact that Congress puts hundreds of billions of future taxpayer dollars out there to soak up a large portion of the investment surplus in no way implies that the trade deficit is a bad thing.

[happyjuggler0]

Suppose a German dentist buys property in Florida as an investment over twenty years, amasses $1 million in assets. This would reflect as capital surplus/current deficit to the US vs. Germany.

After 20 years, he retires and permanently relocates to the surf and sand. Is there a correcting entry to the national accounts to reflect that these assets are now held by an American? Does it depend on whether he becomes an American citizen?

It is a serious question Bungalow Bill, but I have no idea what the answer is. The more I think about it the more I wonder how "they" know exactly how much investments foreigners own.

But going back to your puzzle, it is a pretty good illustration over how the problem of a trade deficit is not a problem but more of a philosophical issue. What is the trade balance between Florida and Georgia? Between California and Washington state? Between New York and Massachusetts? No one knows, and no one cares. Why do we care then care when it is a foreigner who is doing the buying and selling of goods and investment vehicles?

Answer: Because "they" are not us. Sounds similar to white vs black, Christian vs Jew. "They" are taking "our" jobs, buying into "our" neighborhood, we need to stop it. It is an artificial construct.

[joe]

So, do foreigners actually invest $64.7 in American assets per annum?

And how much of that foreign investment is paper transactions, versus building factories in Utah?

[joe]

Another question: Boudreaux points out that the money that furrners spend on T Bills isn't counted in measures of international trade balances.

Is the money the US spends on paying off T Bills to furrners counted in those measures? If not, then Boudreax's point becomes much less important.

[happyjuggler0]

Boudreaux points out that the money that furrners spend on T Bills isn't counted in measures of international trade balances

Where does he say that? I think you misread.

[jp]

happyjuggler0 -- Thanks for responding to dflynn. I wanted to but just didn't have the energy. (And even if I did, I prolly still wouldn't have done as good a job.)

BTW, I've been reading Boudreaux's stuff regularly for years. It seems to me that he's too much of an independent old cuss to be a shill for anybody.

[dflynn]

I have to laugh at some of these responses.

One person states we export lots of stuff, but of course none come to his mind. We export a few foods. The USA has an export pattern of a 3rd world country.

The GMU economist stated that the trade deficit was OK, because it was funding capital investment in the USA. There was a time in our history when that was true, but that isn't the case anymore. The trade deficit mirrors the budget deficit for the reasons I stated. One funds the other. There is no investment here, just the accumulation of more debt.

Interest on the federal debt is increasing in absolute terms, as a fraction of GNP and as a fraction of the federal budget.

Transfer payments are also growing in absolute terms, as a fraction of GNP and as a fraction of the federal budget.

Manufacturing is in decline and the so called service economy is filling the gap. How do you pay for imports like oil by doing people's laundry?

At what point will any of these trends become alarming?

I am not confusing trade deficits with budget deficits, but their relationship at this point in time ought to be obvious.

[Jennifer]

Can anyone tell me what we export? Lots of stuff, and more of it each year.

What stuff? That's a sincere question. I know we have a major weapons industry, and our entertainment industry exports a lot of movies, music and so forth, and I think we're still a net exporter of food. What else do we export?

[Jennifer]

Oh, dflynn posted the same question just before I did.

[dflynn]

"Why do we care then care when it is a foreigner who is doing the buying and selling of goods and investment vehicles? "

The US government does not have to pay unemployment benefits or welfare payments to foreigners. The US government has a vested interest in a rising standard of living for American workers, more so than for foreigners.

[MikeP]

Is the money the US spends on paying off T Bills to furrners counted in those measures? If not, then Boudreax's point becomes much less important.

joe, the Bureau of Economic Analysis produces a quarterly report which should answer all these questions you ask.

[MikeP]

The US government has a vested interest in a rising standard of living for American workers, more so than for foreigners.

Then by all means the US government shouldn't care whether the US runs a trade deficit or a trade surplus, so long as the trade is free.

[Hakluyt]

Jennifer,

We export quite a lot of farm machinery, chemicals, all manner of capital goods, etc.

[MikeP]

I am not confusing trade deficits with budget deficits, but their relationship at this point in time ought to be obvious.

Their relationship is interesting only in the sense that they are two lines on a balance sheet.

If the US government didn't spend $300 billion dollars it didn't have, it wouldn't need to sell $300 billion dollars of government debt.

What does this have to do with whether the dollars crossed a line on a map on their way to the Treasury Department?

[CrackerBarrel]

Although we have stiff competition from Airbus, we export a lot of big, expensive airplanes. IIRC, the first delivery of Boeing's new 7E7 will go to a foreign air carrier; I believe it's All Nippon Airways. They're buying 20 or 30. There are other foreign purchasers, too.

[dflynn]

"Then by all means the US government shouldn't care whether the US runs a trade deficit or a trade surplus, so long as the trade is free."

Another cute slogan that ignores evidence. Is there any sign that the standard of living of US workers is increasing?

Free trade is more efficient than restricted trade, but it does not identify who wins and who loses by improved efficiency. Right now, foreign workers are winning and American manufacturing workers are losing. Prices on consumer goods are lower than they otherwise would be. So recipients of transfer payments are winning at the expense of American wage earners.

I don't claim the trade deficit is the cause of the problem, but it most certainly is a sign of a problem rather than something to be proud of.

[joe]

happyjuggler,

"Misread?" Did you read the article?

Paragraphs 5 and 6: "Those cases appear different from each other only because of the conventions of international commercial accounting, which records investments separately from imports and exports...This accounting convention creates the false impression that an excess of imports over exports -- called a "trade deficit" -- is an ominous imbalance requiring corrective action."

Paragraph 8: "Although dollars spent by foreigners on investments are not spent on items classified as U.S. export..."

I think you might want to read that piece again, because the point that you don't recall being made - that figures for the trade deficit don't include foreign capital invested in the United States - was the column's central thesis.

[dflynn]

"We export quite a lot of farm machinery, chemicals, all manner of capital goods, etc."

We used to. Not anymore.

We used to export aircraft. Now most of the aircraft is built overseas and final assembly is done here. About 30% of a Boeing is made in USA.

We used to export machine tools. Now we import machine tools. Same with bearings.

[joe]

Jennifer,

We "export" a lot of services. A lot of foreigners leave their foreign-accumulated capital in our hospitals, for example. Telecom services are another such "export."

[joe]

30% of a Boeing aircraft is some serious coin.

[dflynn]

"30% of a Boeing aircraft is some serious coin."

So is the 70% that is imported. That is why aircraft is now an import.

[Stevo Darkly]

Can anyone tell me what we export?

I would like to know also, but for some reason I had a bitch of a time finding anything on the WWW along the lines of "A listing of the major exports of the USA," period, as opposed to a description of major US exports to this or that specific country.

Eventually I found a list of exports on some piece of shit site that I've already lost the URL to, and it's 10 years old (for 1996). Also, this list only includes material goods, not services, so it's far from complete. But it might be better than nothing.

The figures are "millions of dollars."

1. Electrical machinery, apparatus and appliances $70,287
2. Road vehicles 51,703
3. Office machines and automatic data processing machines 45,751
4. Transport equipment 34,356
5. Miscellaneous manufactured articles 30,694
6. General industrial machinery and equipment 27,370
7. Machinery specialized for particular industries 26,628
8. Power generating machinery and equipment 23,169
9. Professional scientific and control instruments and apparatus 21,441
10. Telecommunication and sound record and reproduce apparatus and equipment 21,414
11. Cereals and cereal preparations 18,153
12. Organic chemicals 15,012

[dflynn]

"and it's 10 years old (for 1996)"

That is a big part of the problem. A lot has changed in 10 years. Look up the trade deficit for 1996. A lot of empty buildings since 1996 in places like Ohio. If they were being replaced by other buildings in places like New Mexico making high tech stuff, there wouldn't be a problem.

[Hakluyt]

dflynn,

Someone needs to get you a copy of Ricardo's Principles of Political Economy and Taxation. :^)

[LoneSnark]

"Is there any sign that the standard of living of US workers is increasing?"
Well, we are producing more and more every year, so yes. US GDP is increasing at 4% or more a year. As you know, if the U.S. was not producing any more goods or services, yet imported more and more every year, then its GDP would be decreasing because GDP = domestic + exports - imports.

I should also point out that U.S. industrial output today is about double what it was in the 1980s. The fact is, we are producing more than ever with fewer workers than ever. Doing more with less, the capitalist way.

[joe]

dflynn,

"So is the 70% that is imported. That is why aircraft is now an import."

I've nothing against anyone else getting theirs. Just as long as we get ours. 30% of Boeing will do nicely.

[joe]

Lonesnark, the question was, "Is there any sign that the standard of living of US workers is increasing?"

The rise in GDP doesn't tell us anything about that issue whatsoever. The decrease in the amount paid to workers in manufacturing would actually count as evidence that their standard of living is NOT increasing.

[dflynn]

"As you know, if the U.S. was not producing any more goods or services, yet imported more and more every year, then its GDP would be decreasing because GDP = domestic + exports - imports. "

No, I don't know that, because imports have nothing to do with GDP. GDP is gross domestic production.

We are also producing much more than we did during the Revolutionary War, though I don't know what that has to do with the discussion.

Here is a hint: Look at real (adjusted for inflation) after tax wages of US workers.

[Frank_A]

Well, by CIA World Factbook, we had about $927,500,000,000 in exports, as a 2005 estimate.
http://www.cia.gov/cia/publications/factbook/rankorder/2078rank.html
Oh yeah, and we're ranked fourth in exports of coutries behind #1 World , #European Union , #3 Germany, and #4 USA.
Proof we're not exporting a damn thing.

[Hakluyt]

Frank A,

Someone needs a primer on comparative advantage. 🙂

[Frank_A]

Hak,
But them furriners terk our jerbs!

[Frank_A]

Damn goobacks...

[Hakluyt]

Frank A,

"They took our jobs!"

[biologist]

NoStar: you beat me to it! by only, uh, 4 hours.

OK, how about Don't Worry about the Trade Deficit a la the talking heads' Don't Worry about the Government - add a sound clip with Nick singing the altered lyrics

[Kahn]

A lot of empty buildings since 1996 in places like Ohio. If they were being replaced by other buildings in places like New Mexico making high tech stuff, there wouldn't be a problem.

dflynn, I suggest you take a little closer look at what's going on in New Mexico. And throughout the SW. Lots of high tech stuff happening.

Much of it happening in small companies, because the big ones won't take the risks. The big guys let the little ones take the risks, and when the tech matures, the big guys buy out the small guys. Been that way for decades.

Sure, China and India are doing the heavy industry work that we used to dominate. But even in '96, manufacturing ball bearings and assembling tractors wasn't exactly on the frontiers of technology. Figuring out how to make optical fiber with lower losses over wider bandwidths was on the frontier (trust me, I was working on it).

But before 2000 arrived, even fiber optic manufacturing got to be old hat, and every China man in Asia suddenly built a fiber draw tower in his garage. Guess what? Poof. The US fiber optic industry croaked over night (and I moved to another industry).

Technology is a major driver of the US economy, and I'm convinced that we're still right up around the top of the technology food chain. Boeing may manufacture 70% of their planes overseas, but virtually all of the high tech innovations that make the next generation of planes possible, is happening nowhere but in the good old US of A.

A big part of the problem here is that technology is moving faster every year, so that what we're doing in this country is extremely difficult to keep track of. And, how do you "measure" the "export" of the intellectual property that we're developing?

Big technology frontiers today include (but not limited to) the development of advanced materials, and, devising ways to increase bandwidth of our data streams (telecom and computers) cost effectively. Our computer networks could do lots more things if we only had the bandwidth.

I can give you lots more examples of places where we're pushing the technology frontiers, if you need to hear it. Like, figuring out how to miniaturize electronics even further, without burning out components. And biotech. And medical tech.....

Consider how long it can take to post a stinking message on here!!! We need more bandwidth, everywhere.

Now, OTOH, I will also be the first to concede that we'd be doing a lot more heavy industry than we are, if our government regulations hadn't gone beyond anything sane. Worker saftey is a real issue, and so is preventing Corp. America from dumping cyanide in Lake Erie. But our regulations have gone to the point that, for example, you almost cannot afford to manufacture paper in this country anymore (and I for one don't believe this is necessary to keep the environment reasonably clean).

Fortunately, our military industrial complex is keeping most of our basic capabilities alive in heavy industry. And for those who want to gripe about the military industry, the amount of civilian spin off technology that keeps rolling out of it is truly impressive. It most certainly does help keep us on the leading edge.

Somehow, our technology has managed to move faster than our beauracrats can think up new laws to hamstring us. I have sometimes wondered if this see-saw is going to tip the wrong way. But I don't believe it's happened yet.

[Kevin]

Found some data at http://www.census.gov/indicator/www/ustrade.html :

- Exports increased $119.7 billion in 2005 to $1,271.1 billion. Goods were $892.5 billion and services were $378.6 billion.

- For 2005, exports of goods were up $85.0 billion from 2004. The largest increases occurred in capital goods ($30.4 billion; primarily civilian aircraft, medicinal equipment, aircraft engines, materials handling equipment, excavating machinery, and aircraft parts); industrial supplies and materials ($27.8 billion); and consumer goods ($12.4 billion).

- For 2005, exports of services were up $34.7 billion from 2004. The largest increases occurred in other private services ($10.0 billion); travel ($9.0 billion); royalties and license fees ($5.2 billion); and other transportation ($4.5 billion).

[happyjuggler0]

Ok joe, I misread your point, not the article. I thought you were basically saying the exact opposite. T Bills isn't counted in measures of international trade balances is what you posted and I thought you said it was counted. I guess we agree. 🙂

You are exactly right that investments in the US are not trade. The whole point in fact is that they are not trade. That is why there is an "imbalance". If you add up investments in the US (both direct investments or liquid investments in stuff like bonds and stocks) and US financial assets held by foreign governments, and add that financial figure to our trade deficit you get exactly $0. If it is not $0 then someone counted wrong. 😮

Perhaps we should count exports/imports in three categories: 1)manufactured goods 2) services 3) investments. We'd always have a trade balance of exactly $0, and we can avoid silly threads like this one by people who think a trade deficit means our ability to export is compromised somehow.

I also would like to thank everyone who added exactly what "stuff" we export. It just seemed axiomatic to me that if our exports were rising then it is silly to say that those exports are "uncompetitive" somehow.

[happyjuggler0]

To phrase the whole thing another way, suppose a foreigner invested $1 billion in the US on January 1 first thing in the morning. He exchanges $1 billion worth of euros with a US bank to get the cash. The US bank then trades it away to get dollars back. Ultimately that $1 billion worth of euros has to go into some combination of imports into the US from Europe, or investments overseas. If there are not enough buyers of those euros interested in investing overseas, then there is only one other choice. They must be used to buy European goods, and then we have a trade deficit already.

In that scenario, the fact is that there's more overseas investment capital looking to invest in the US than from US interests looking to invest overseas. How can this be a reflection of a bad scenario in the US? It isn't, and therefore the net trade inflow (aka trade deficit) that results from those euros being used for imports is a sign of a good thing, not a bad thing.

[Frank_A]

BTW, is dflynn Pat Buchanan? Because if so, then I loved how you pissed off HRC in '92...

[jp]

the fact is that there's more overseas investment capital looking to invest in the US than from US interests looking to invest overseas. How can this be a reflection of a bad scenario in the US?

I KNOW it's bad in some way . . . just give me a few hours . . . I'll figure out some way to make it seem bad . . .

[dflynn]

"You are exactly right that investments in the US are not trade. The whole point in fact is that they are not trade. That is why there is an "imbalance". "

Well, we have finally come full circle to what I said in the first place.

Capitalism is the improvement of productivity through investment. A man operating a front end loader can dig holes faster than a man with a shovel. The worker can be paid more and the owner of the equipment can pay off the loan and make a bigger profit. Everyone wins.

Earlier in our history, foreigners invested in American enterprises, such as railroads. At that time the GMU prof's thesis was correct. One might say we exported private financial investments.

At this time, however, we are "exporting" US Treasury Bills. This does not improve American production, but simply adds to government debt service. If you think that "exporting" US Treasury Bills to support increasing transfer payments is a good thing, then keep on cheering as the trade deficit goes up.

Somebody asked why I should worry that foreigners buy US Treasury Bills. I don't care who buys the Treasury Bills. As I stated, I am concerned, because the burden of debt service is rising no matter how you measure it. No doubt, some GMU prof will write how this is a blessing too.

For the person who asked, I am not Pat Buchanan.

Kahn is correct that regulations, both useful and excessive ones, are a major cause of our competitiveness problem, but that is another topic.

[keith]

What are some of our key exports?

Joe's hit a big one for the people who travel to the US for cutting-edge surgery. They may be paying cash money $10K to $50K for a treatment.

Even under foreign price controls, new branded pharma products are dominated by American companies and the products from American research. As for foreign pharma co's, I think Glaxo and Roche do some work in Europe, but the bulk of their research in the US... Bayer might spend primarily in Europe; the Japanese pharmas Sankyo and Eisai tend to spend in Japan, but the volume they spend on research is a fraction of the amount spent in the US. Pharma research is a multibillion dollar service the US sells to the world.

Also, we "export" or sell to foreign families a lot of higher education services. There are a lot of foreign-born students who come to the US for undergraduate study -- my freshman year roomate was from Caracas! Outside of well-funded, competitive research PhD programs, few J-1 visa-holders I've known have received scholarships. They're generally paying full-fare. If you assume $30,000 in tuition and living expenses per year then if you see 33 foreign students on a college campus, you see a million bucks repatriating to the US. Since they tend to be about twice as expensive, 16 top-level MBA students bring back the same million.

Here's a citation: http://opendoors.iienetwork.org/?p=37037

"Nationwide, the survey found 586,323 foreign students enrolled in nearly 2,500 colleges and universities. " (2003 survey)

This survey probably counts supported PhD's but if I conservatively assume 50% of the number pay an average of $30,000 per year I come up with $9 billion coming from forign sources to purchase US educational services, or 1/7 of the $64B given trade deficit in the article.

[AllenP]

A lot of other people have already addressed the export question so I just wanted to post a link regarding the U.S. not manufacturing anymore. This post at Cafe Hayek shows manufacturing output over the last 20 or so years.

http://cafehayek.typepad.com/hayek/2006/02/we_dont_make_an.html

Even if we weren't making more physical stuff than before I don't really see it that big of deal since services are pretty lucrative now as well.

[Kahn]

I am concerned, because the burden of debt service is rising no matter how you measure it.

This you're right about. But coming full circle again, isn't the root of the problem that our gov't is over spending? That's a problem no matter how you look at it.

In a sense, it's not surprising that foreigners are buying our debt. Asian economies have been growing faster than pretty much everybody else. They've suddenly got something to invest.

[MikeP]

At this time, however, we are "exporting" US Treasury Bills. This does not improve American production, but simply adds to government debt service. If you think that "exporting" US Treasury Bills to support increasing transfer payments is a good thing, then keep on cheering as the trade deficit goes up.

Then I hope you see the irony in all this.

A significant portion of the federal budget deficit -- perhaps enough to cover all of it -- is spent on programs designed to address exactly the problems thought to come from a trade deficit in and of itself.

Education, job training, import/export supports, farm subsidies, research and development, most other corporate welfare, in fact the entire soon-to-be bipartisan American Competitiveness Initiative. All of these are promoted in the name of making the US a better producer for the world, and the trade deficit is used to indicate that they are needed. The promoters of these programs would call them "investments" in the future of the nation.

Yet these "investments" push up the budget deficit and by definition the very trade deficit they are designed to address.

We desperately need more people writing more articles about not worrying over the trade deficit!

[amazingdrx]

Savings down, consumption up. A decadent imperial culture is thus weakened from within and without. Eventually becoming hollow. Like Rome. Like London, like DC.

[Kahn]

Where is gauis when you need him?

[wayne]

You guys need to read the great Mogambo to really understand this economics stuff...

http://www.321gold.com/editorials/daughty/daughty020806.html

[Fred]

Folks,

Who owns the company? Who owns the building? Who is the boss? Who is the landlord?

If you don't think those questions matter, then enjoy collecting your paycheck from the government of the Peoples Republic of China and enjoy sending them your rent.

The trade deficit matters, at least until all people are free.

[Frank_A]

Fred,

Well with that attitude, why not bar all investment from nations that aren't "free." That will show them dictators when their economies fail and allows the dictator/junta to declare emerency powers to uphold their tyrrany. It's sure been working in Cuba...

Look, while I would place some strictures on technologically sensitive areas (like in millitary or aerospace research), I say let China and others invest here. First, by CHina investing here, means that it will be painful to later fight agaisnt us. Next, China's liberalization of their economy, their middle class has drastically increased, that means the regime has to keep their economy going in order to maintain its grip on power. And once an economic hurdle hits the nation, all the middle class people will be mighty pissed and the rulers are going to have some troubles.
Of course, that's the usual trope for people like me who believe trade should be free to necessary hilt, irregardless of a nation's government. Does the mean China will have a revolution if an economic hurdle, or that it will not go to war against us over Taiwan, or that the middle class will keep on growing. No. But from what I see, this benefits the American people and Chinese people in the short to medium (and yes, benefits the PRC regime as well), while in the long term undermines the PRC tyrrany from within...

[joe]

Damn, there's a lot going on in this thead!

keith, interesting point about the furrners paying our colleges big bucks. Where I went to college, there were two kinds of students: those of us there on scholarships, and the people who paid sticker price, whom we tutored.

While there were a lot of Americans in the latter group, there were a lot of international in the latter group - east Asians, Middle Eastern, South Asian especially.

[wayne]

"Where I went to college, there were two kinds of students: those of us there on scholarships, and the people who paid sticker price, whom we tutored."

Joe, I for one am just happy and humbled to be in the presence of such an intellect as you. I just wish all the other scholars from your cloistered college would drop in on H&R and tutor the unwashed here.

As smart as you are Joe, you of course intended your post to sound condescending, so unfortunately you are not surprised at my feeble sarcasm. If only I had gotten a full ride, maybe I would be better at this... :-]

[joshua corning]

You see the problem is that the burden of entry into US markets is much to easy and the burden of entry into forign markets is much to hard...and the solution is that we should make the burden of entry into US markets much harder.

Now you kids go along now and trust that uncle joe and the left will protect you all from those big mean forign investors.

[Kahn]

no need to fear, super joe is here

[joe]

Damn, people, insecure much?

And joshua, I haven't written anyting in favor of protectionism. But hey, you just know what I must believe, because of your deep understanding of what all liberals think, right?

[joe]

I'm going to make fun of joshua, some more, because his comment is so moronic as to make public mockery mandatory.

joshua, you tool, perhaps if you'd had the good fortune to have me for a tutor, you'd have the reading skills necessary to realize that not only did I never call for protectionism, but I actually wrote a number of posts on this thread pooh-poohing other people's anti-free trade concerns. Like the exchange about Boeing, for example.

It's bad enough to simply make up a position for someone in the absence of evidence, but it takes a really weak, insecure mind to assign positions to someone that are directly contradicted by their own words.

[joshua corning]

But hey, you just know what I must believe, because of your deep understanding of what all liberals think, right?

the left joe...not liberals...I am a liberal, and I have trouble viewing the left as liberals. It takes more then being ok with gay marriage to be a liberal in my book. It requires putting the rights of individuals over the rights of groups.

The "liberal" in "liberal democracy" as it were.

[joshua corning]

joshua, you tool, perhaps if you'd had the good fortune to have me for a tutor, you'd have the reading skills necessary to realize that not only did I never call for protectionism,...

Holding a personal definition of protectionism so narrow in terms as to be be unachivable is not a defense against critisism.

[amazingdrx]

With national borders rapidly becoming amachronistic, trade deficits may soon be nothing more than an illusion. If they are not already.

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