How Can Trump DECREASE the US Trade DEFICIT? - VisualPolitik EN - YouTube

There’s no doubt: the trade war is one of the hottest topics in international politics.

Here at VISUALPOLITIK, we’ve already spoken about the consequences that this trade war

may have – or which it may already be having.

However, we should explore a question many of you have asked – especially through our

PATREON page – that is essential for analyzing this entire matter.

Why does the United States have such a large trade deficit?

Why do they have such a gigantic deficit, which surpassed 550 billion dollars in 2017?

And most importantly, how serious is it and how can it be fixed?

Yes, some of you may be thinking...

Well, that’s easy… there’s a trade deficit because the United States imports more than

it exports, among other things because of the evil unfair competition that has deindustrialized

the country.

Ergo, if we punish imports, the trade deficit will decrease, right?

After all, this is the stance of the White House, of President Trump.

Well... just a moment… because things aren’t anywhere near as simple.

Listen up.

(THE EASY EQUATION)

Step One: Choose, magnify and report a problem; Two: place a large number on the table that

we can all visualize; Three: create and blame an enemy – whether it’s real or not…

it doesn’t matter-; Four: warn everyone of the consequences of this problem and, finally,

end with a simple and electoral remedy... that is also false.

Folks, these are the steps for creating a populist political discourse... a discourse

that at the moment of truth may be worth nothing...

but which may help you win elections.

Well, that’s exactly what the White House is doing.

With the aim of winning votes, they have created a political discourse that, so to speak, is

fundamentally based on a 3-element equation:

But don’t worry, this has nothing to do with math… at least not entirely.

First element: the trade deficit causes terrible damage;

second element: this damage is due to the other countries’ unfair competition, especially

China;

and third, the threat: due to the other countries’ bad behavior, the US’s industry and power

is falling apart.

However folks…

discourse is one thing and reality is another very different one.

See, to magnify the problem, Donald Trump’s commercial advisors alert us again and again

about the negative impact that this whole trade deficit has on the North American economy.

To do so, they use the accounting entity that you’re seeing on the screen, which is one

of the formulas used to calculate the GDP.

Thus, GDP equals Consumption, plus investment, plus public spending plus exports minus imports.

[I mean, this is economics 101.]

Well, the fact is that seeing it this way makes it look like the trade deficit is causing

a huge amount of damage to the US economy, and, of course, if the difference between

exports and imports decreases, then the GDP would increase.

Prosperity for everyone.

Easy, right?

Well... just a second, because this all implies simplifying things to the point where any

resemblance to reality is purely coincidental.

Why do I say this?

Because relations with the rest of the world have a lot, and I mean a lot of influence,

on the other sections that make up the GDP.

At the end of the day when a foreigner invests in the United States or when US companies

buy raw materials, capital goods or intermediate goods, the effect on the economy isn’t exactly

negative.

Quite the opposite.

If for example all these goods become expensive because of tariffs then companies lose competitiveness.

Here on VISUALPOLITIK we’ve already talked, for example, about how tariffs have caused

Harley Davidson to move its processes to Europe.

In a similar way, more expensive import products would also affect the retail sector... so

that in the end... the relationship of this supposed trade deficit with the GDP isn’t

as direct as it might seem at first sight.

The second element of political discourse that the White House uses is that of unfair

competition, especially in the case of China...

And of course, supposedly because of Beijing’s bad actions, China’s goods and services

deficit alone exceeds 300 billion dollars per year.

And that's when Trump thinks... let's see, if we decrease China’s trade deficit…

then problem solved....

Well, folks, things don’t work that way either.

First, this unfair competition is at the very least questionable.

China has been blamed for manipulating its currency.

Well... it’s not true.

In fact, it's the opposite.

In recent years the Chinese yuan has risen a lot against the dollar.

And do you know what happened to the trade deficit with China when Beijing didn’t devalue

its currency to export more?

Well... it shot up.

How can that be?

Well, in reality, the US’s trade deficit with East Asia in terms of manufactured goods

has been more or less constant since the mid-90s.

What has changed is that what once came from Taiwan or Japan, among others, now comes directly

from China, as it’s become a great assembly center...

And that’s precisely what has fattened the US trade deficit with China so much.

And regarding that last point... the one about deindustrialization and loss of competitiveness

due to unfair competition...

well...

it isn’t true either.

US exports – which remains the second largest exporter in the world – are at record levels...

just like industrial production.

Check this out.

No, I'm sorry, but China isn’t devouring the American economy.

But... just a second, then… if Trump's arguments aren’t true about the entire United States

trade deficit...

Why is there such an imbalance?

What are the real reasons for it?

Listen up.

(THE REAL REASONS)

You may be surprised to know that what caused the US trade deficit wasn’t any country’s

unfair competition.

This time, all the fault stayed at home.

Yes, leaving the theories that speak of evil Chinese schemes to destroy the West aside

may be much less exciting... but...

I'm sorry... that's the way things are.

See, the commercial hole is due to the low savings rate in the United States;

the dollar is a reserve currency, which makes it highly demanded and overvalued

along with the huge amount of capital that comes to the United States every year from

abroad... for example, from China.

As we’re going to see, this is what explains why the United States spent more than 40 years

with a trade deficit without the economy suffering.

More than 40 years!

In a row!

Consuming more than it produces.

Because folks, Trump always talks about the trade balance... but never talks about the

financial balance.

And there’s the trap.

(AN ABSOLUTELY LOST GAME?)

There’s an economic law that the US President seems to be unfamiliar with:

the balance of payments, which measures the monetary transactions of a country with the

exterior, is always in equilibrium in a system of floating exchange rates like the one that

exists nowadays.

Allow me to explain: when there’s a trade deficit, it’s basically compensated by capital

or financial account surpluses, which more or less reflect the balance between the capital

that arrives in the country and that which leaves.

That’s the money that comes in and the money that comes out.

( A persistent current account surplus is always balanced out by a capital account deficit.

It’s one of the eternal laws of economics, like gravity in physics”.

- Konrad Putzier, a reporter at The Real Deal)

Look at what happens, precisely, with the United States Balance of Payments:

As you can see, the trade deficit is offset by surpluses in the financial balances.

Now, does this mean that a country can buy whatever it wants abroad, without limits?

Well... obviously not.

It can only import if it manages to finance or compensate for its imports with capital

that comes from abroad.

Otherwise, first, its currency would depreciate a lot – a pure law of supply and demand,

high demand for foreign currency and little for local currency – and then, eventually,

the foreign currency reserves of the Central Bank would dry up… unleashing an entire

exchange crisis.

This is something that in Latin America, especially in Argentina, is very well known.

Well ok... so what happens in the US’s case?

Well, America is the greatest refuge for capital on the entire planet, therefore every year

huge amounts of capital enter the country.

Practically half of the world's savings are spent investing in this country, either as

loans; direct foreign investment or by buying shares, bonds, etc., etc.

Have you noticed, for example, the impressive run that the SP500 has had in the last 9 years?

Well... it’s precisely that enormous capital flow arriving every year to the United States

that allows Americans to consume more than they produce and which, despite incurring

commercial deficits for more than 40 consecutive years, has led the country to practically

always find employment, and record levels of exports and industrial production.

Now we can understand things like this:

(“Whether it’s Japan in the 1980s, Germany in the 2000s or China in recent years, countries

that invest heavily in the New York real estate market also tend to have a massive trade surplus

with the U.S.” - Konrad Putzier, a reporter at The Real Deal)

Basically: thanks to the capital that comes from abroad, the United States can afford

to consume more than it produces.

So in addition to exporting goods and services, the United States also exports financial securities.

This is the key.

But, wait, does this mean that the fiscal deficit can’t be reduced?

Not at all.

(HOW TO DECREASE THE COMMERCIAL DEFICIT)

As you can see, sometimes things aren’t as they seem at first.

Having a trade deficit doesn’t have to be bad.

After all, the ultimate economic objective must be to improve living conditions, that

is, the ability to consume more and better goods and services.

But...

yes, a bulky and continuing trade deficit can have some drawbacks

For one, it assumes more risk... a risk that capital will stop flowing towards the country,

which could lead to a huge crisis.

And for another, it favors debt growth.

A country flooded with money from abroad?

That means abundant and cheap money, and who doesn’t want cheap money?

So let’s continue with the key question: how can Donald Trump decrease the US trade

deficit?

Well, there are, mainly, 3 options...

2 that we should set aside and 1 that’s highly recommended.

The first two – those we don’t recommend – would be either agreeing to devalue the

dollar and stop it from being the hegemonic currency of the world with the Federal Reserve,

so imports would be much more expensive and nobody would want to take their money to this

country;

Or the US could restrict the capital coming from abroad, for example through taxes...

of course that... in the long run, would be a disaster.

The other option, the one we recommend, is consuming less, saving more and favoring productive

investment.

That way, fewer foreign loans would be demanded and much more wealth would be generated, so

that, in percentage terms over the GDP, trade deficits would be much smaller.

And to achieve this goal, stopping the government's growing fiscal hole would be a fantastic idea.

But Trump, despite his speech, is going in the opposite direction.

It would also be a fantastic option to allow American companies to fill the nearly 6 million

vacant jobs that the North American economy suffers today by bringing professionals from

abroad.

However...

protectionist policies don’t work...

first because all the other countries tend to respond to tariffs with their own tariffs,

which reduces imports but also exports; and most importantly because the increased costs

led by tariffs make the United States a less attractive country to invest in....

And that, in the long term, is a very bad thing.

Perhaps, folks, the strongest proof that American companies need to be open to the world is

found in the Trump family itself.

Yes, in the Trump family.

See, Ivanka Trump, the President’s own daughter and White House special adviser has just closed

her clothing and accessories brand.

Ivanka made this decision after suffering a steep drop in sales and a huge amount of

criticism for some alleged contradictions

Do you know why she was so criticized?

Well... can you guess where she was making her products?

Surely in the United States, right?

Well... no, wrong… the correct answer is in China!

Most of her products were made in China!

And also in countries like Vietnam and Indonesia.

Has Ivanka Trump herself been an accomplice of the evil entities that have been attacking

the United States?

I’ll leave that there.

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And don’t forget to check out our friends at the Reconsider Media Podcast - they provided

the vocals in this episode that were not mine.

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