Growing trade deficit is selling the nation out from under us (2003) [pdf]

A long time ago, Britain was the dominant economic power in the world.

Britain had a massive trade deficit with India. It imported far more from India than it exported to India.

But what Britain did was import massive amounts from India and made high value goods at home and provided high value services that couldn't be provided elsewhere.

Should it have flipped the other way? In 1800, should Britain have suddenly shifted gears and started massively exporting to India in order to balance the trade?

Sure, India was a colony and not a mere trading partner, so no need to argue about that. But the US is also an empire that has bases around the world and has many countries in an economic chokehold. The situation is similar in a modern context since official colonization is kind of gone. The US takes in lower value products from around the world and sells them back to the original country at a higher price due to some sort of added value.

Should America do the opposite? Should we drop all of our high value scientific and medical research, drop our engineering, and go all in on making t-shirts to balance the trade deficit? Because we very well could do this. We could steal away the fine industry of Cambodia and Bangladesh and have them buy all our t-shirts and balance the deficit pretty quickly. But is that a long term benefit?

Cambodia and Bangladesh are countries that can't really afford to buy massive amounts of American high tech exports or foods. But they're essentially colonies that export goods to other countries, and through accumulating wealth through that development, more people can afford to buy American high tech products. But we're demanding that these countries buy lots of American products now with money that they don't have. The only way to balance that is to make things they can afford. Which means low value items.

The t-shirt metaphor is completely unjust - there is no value there for national security nor strategic autonomy.

Consider instead:

- Semiconductor low-end fabrication (Taiwan, Korea)

- Basic electronics: circuit boards, USB devices, .. (China)

- Auto parts (Mexico, China, Germany)

- Generic drugs (India, China)

The reality is that the US is not the ultimate global hegemon anymore and therefore offshoring industries cannot simply be viewed through an economic lens.

>high value goods at home and provided high value services that couldn't be provided elsewhere.

Eh, they were swiftly outcompeted in almost all fields, but protected that system of mercantilism, by disallowing their colonies to unload anything that was not flagged british. Monopolies work that way, they ruin things and are memorized in the empire center as "good times"..

https://www.investopedia.com/ask/answers/041615/how-did-merc...

PS: This is one of the reasons why the spinwheel is on indias flag- as a sign of clothing production autonomy.

> The only way to balance that is to make things they can afford. Which means low value items.

How about the US pays them well for their work so they can afford all these "high value" items?

Oh no, we economically enslaved all these people to our clothing in sweatshops for pennies an hour, but now they're not buying our...1000$ tablets that don't even have a calculator app...or whatever else the US considers "high value"... Oh how terrible!

The wheel on the Indian flag is not a spinwheel[1], though it was proposed at some point in time before they got independence.

[1]https://en.wikipedia.org/wiki/Ashoka_Chakra

Thats just half the story.

What the US has traditionally done is make these countries then take Dollar loans from the IMF and World Bank to buy American defense and high tech products. When they naturally then default (right now there are more than 50 countries that cant pay back these dollar loans cause where the fuck are they going to get dollars from) their only option is to sell off their natural resources to Wall St/build a US mil base/hand over port etc.

This game has been going on so long (google super imperialism) the US with 5% of the worlds population has accumulated more than 50% of the worlds market cap value.

So the US starts overdosing on leisure/luxury and pace of innovation starts slowing cause they dont even need to be innovative. Try to build a ship in the US and its not possible anymore cause the experience is all gone. There is no great magic solution. When you talk about British history look at the 60s and 70s. There was major turmoil economically and socially post the Ww2 rebuild cause the entire system dependent on colonies had to restructure itself.

Exactly. It should start with education. You guys don’t have nearly enough qualified people to take back these industries.

That’s why the logical thing to do is invest heavily in education.

Oh, wait.

> Sure, India was a colony and not a mere trading partner, so no need to argue about that. But the US is also an empire that has bases around the world and has many countries in an economic chokehold.

That seems to resolve the question you put. Britain and India weren't independent, so talking about a trade balance between the two doesn't really mean anything. If it favoured India, that was good for the British Empire. If it favoured Britain, that was also good for the British Empire. It didn't matter who was favoured or by how much because the British capitalists and Imperial officers were in control of both sides of the trade.

I personally think the US trade deficit is a huge problem ... for the US's trading partners who just gave it real stuff for paper. But your argument for why Britain-India experience was relevant doesn't hold together.

> Britain had a massive trade deficit with India.

Google tells this isn’t true.

The UK actually had a massive trade surplus because it received cheap resources from India, then sold back high value items.

All of this was controlled by strict trade rules.

> The t-shirt metaphor is completely unjust - there is no value there for national security nor strategic autonomy.

Buffet's article and Trump's tariffs reflected antipathy to net trade deficits. Not specific strategic concerns.

What's funny is the tariffs announced a couple day sago explicitly excluded semi conductors and pharmaceuticals. We are literally about to tariff t-shirts but not those more strategic industries.

>> the US is not the ultimate global hegemon anymore

The hegemon concept is also out of date. World trade is not dominated by countries but by multinationals. For instance, there are no real "US" car companies. There are a handful of huge conglomerates who can choose to operate wherever best suits their needs. These respond to edicts from individual countries but operate at a level above nation states.

This is why international cooperation on things like taxation or environmental protection is so important. And it is why petty bickering by individual nations will be so damaging.

Thanks for pointing that out. I knew this already, but if I didn't that would be exactly the kind of factoid that would stay stuck in my head for the next 30 years

Britain imported resources India which was a source of resources, which it then used to sell high value items globally.

I think the UK ran a deficit with India, but a surplus with (richer) countries that bought those high value items.

Come on, did you see the trade for goods and services deficit with EU? It's ludicrous. But hey, the president decided to focus only on goods. Why not on everything? Because it's unjustified. He needs money. A lot. And throwing out accusations at other countries is the only way he can get out of it fine. If he had just set a 10-15% tax on all imports "just because" people would have never approved. Now, on the other hand, look at those unfair European, Canadians, Mexicans, ... penguins :)

Because you need them, otherwise a car would cost you 3x.

Britain was not importing. Britain was stealing resources from India. It was beyond slavery. The words plunder and pillage come to mind.

USA on the other hand has a completely different problem (perhaps opposite of what you describe - being the world’s gracious and benevolent trade partner).

So basically, you want everyone to depend on you, but you want to depend on no one.

And if a more balanced trade relation arises, your current leadership is willing to destabilize the whole world, and threaten war.

Americans own too many cars as it is.

China's playbook in a nutshell

That is the case for western economies. China controls nearly all levels of its supply chain. In the past, they didn't have the skills for design, but over time has gained that skill set (china now creates nearly a third of the worlds new engineers per year) and is now capable of designing and manufacturing world class products all in-house.

I guess the only exception is semi-conductors, but we all know they are desperately trying to remedy that.

> The t-shirt metaphor is completely unjust - there is no value there for national security nor strategic autonomy.

And yet tariffs were put on countries where clothes are generally manufactured and imported into the US from, which is why companies like Nike got walloped on the stock market.

> The reality is that the US is not the ultimate global hegemon anymore and therefore offshoring industries cannot simply be viewed through an economic lens.

Trump et al put a 37% import tariff on Botswana. What national security interest is served by that?

Israel got a 17% tariff place on it, but Iran is part of the general 10% tariff list. If these are about national security, why does Israel have a higher number than Iran?

There are valid reasons for tariffs:

* https://www.noahpinion.blog/p/when-are-tariffs-good

The universal tariffs that have been acted don't seem to have been done for those reasons.

The US does not have most countries in an economic chokehold - it's laughable even compare the US and its partners to India and Britain. India was forced to buy cheaper machine made cloth by the shipload in a concerted effort to kill off the traditional Indian man-powered textile industry. Meanwhile the EU and the rest of USA's trading partners choose to use American services or buy American products (granted, in Europe, we don't see much American product either). They could have switched away from American goods but chose not to, because of free trade. With tariffs in place, if there aren't severe switching costs, most countries will definitely move away from the US in the short-term, while drawing up plans to move away from US services in the long term.

Your examples of Cambodia and Bangladesh don't really fit in as American colonies. Both countries are already more dependent on China than on the US for imports. Only a fraction of their populations actually use American goods, what maybe an iPhone or some American brands tops.

They do however manufacture final goods for the American market (and the overall worldwide market), so I don't see any losers here except for American consumers. Your average American clothing company isn't going to move away from these countries because they have the full supply chain in place, and your average overseas production facility isn't going to continue producing for an American company at a cheap price if tariffs are in place.

You're on the money with the last point though. The only way to balance it out is to make low value goods, but that was the whole point of outsourcing it to Bangladesh or Cambodia in the first place. Because that was low value production.

I get the sentiment, but using ship building is an unfortunate example with respect to substantiating your point. The US shipbuilders are alive and well (not to the extent they were in WWII era). Military ships, Jones Act compliant commercial vessels, ferries, tugboats, etc. All US made.

Separately, your first paragraph also seems problematic. Let’s take Vietnam and Cambodia as examples: neither has a US military base, port, nor sells natural resources to “Wall St”.

Finally, I’m not sure I follow how that would cause the US to accumulate 50% of the world’s market cap—especially because the vast majority of the companies in the S&P 500 have nothing to do with defense, shipping or natural resources. I haven’t done the math, but I would venture to guess that >50% of the S&P 500 market cap is tech or tech-adjacent.

I decry this misplaced pessimism.

I was thinking, the UK and EU should set extra taxes on US tech companies to offset the tariffs. don't even need to fix the amount - just tie it to whatever the tariffs are.

> What's funny is the tariffs announced a couple day sago explicitly excluded semi conductors and pharmaceuticals.

They're "excluded" because they're coming later. It was announced they'd be specific 1s in that area.

> to balance the trade deficit?

Let's talk about the all the software exports that got "converted" into a "service" i.e. SaaS / PaaS / IaaS 1st. Not to mention previously we'd have CD / DVD / etc that are now also "services".

Where's the trade deficit again?

Sure, let's all lose our jobs, who needs them anyways...!

But then finally we proved Trump and all those evil Americans a point! *evil laughter...

We in EU could do that, if we dared investing in tech.

I generally agree.

This bit I see differently, though only with ~ 30% confidence.

> vast majority of the companies in the S&P 500 have nothing to do with defense, shipping or natural resources.

If you were evaluating the impact that a road has, and you looked at all the vehicles that passed over it every day, most of the vehicles you see would be in other industries — retail, industrial, commercial, domestic — very few of them are professional bitumen pourers who make roads. So clearly bitumen pouring only affects a low percentage of the city.

And Chinese companies may soon have to evolve too should they want to remain competitive. Being at the behest of a single country is a weakness. A strong company is one that can shift between countries and therefore does not need to bend to their will. The largest Chinese companies will, one day soon, have to step away from Chinese government control.

We all work for US tech companies, do we?

> Google super imperialism

Not sure which one the parent means but this is what I found:

https://www.amazon.com/Super-Imperialism-Origin-Fundamentals...

https://en.wikipedia.org/wiki/Super-imperialism

FWIW: acquiescing and becoming Trump's bitch won't save your jobs either. See Vietnam - they dropped tariffs on the US, and still got hit with the highest American tariffs - even higher than the EU that's threatening to retaliate.

> The US does not have most countries in an economic chokehold

For most of living history, the US went out of it's way to ensure that crude oil is sold in USD, including oil that's extracted in oilfields halfway around the world. There's only one way to get USD is to trade with the US.

> what Britain did was import massive amounts from India and made high value goods at home and provided high value services that couldn't be provided elsewhere

Does this story really describe a trade deficit? Trade is measured in units of currency, not in kilograms.

If I import a quantity of sugar from the West Indies for $1, turn it into rum, and export that rum for $10, then I have, net, produced $9 of exports.

> The US does not have most countries in an economic chokehold

Tell that to any country having trouble repaying USD denominated debts. The US loves lending money to other countries, especially via military goods, and then the US uses the debt as a hammer.

I choose to buy more expensive clothing produced in places that pay employees a decent wage.

I think the US should pay them more. But the fact of the matter is people really want socks and shirts for a few dollars. People can choose to pay more and avoid sweatshops right now. But the fact is, most don't want to do that, and when given a choice, they won't.

Other countries trade with the US in order to avoid their wrath.

And now it's apparent that even being a great ally will result in economic attacks.

So the world gives the US tangible goods. In exchange they get shittalked and more demanded of them.

Yes, but in our very recent history, the US has enabled policies that have driven countries to purchase using currencies other than the USD.

Only if you're buying direct from the gulf countries or you're buying on the spot markets are you forced to pay with the USD. For example, the EU had a long standing agreement to pay for Russian oil and gas with Euros, India has recently begun paying for Russian gas with Indian rupee, as does China with yuan. While Saudi Arabia and the rest of the oil dependent GCC are forced to curtail production to force prices up, Russia floods the oil market to account for the shortfall.