US trade deficit widens to 16-month high

[Heracles 417]

US trade deficit widens to 16-month high

Thursday, 10 June 2010 16:20 UK

Container ship Trade still remains below levels seen before the global financial crisis

The US trade deficit widened to a 16-month high in April, as both imports and exports fell slightly.

According to the Commerce Department's data the total monthly deficit was $40.3bn (£27.5bn), up 0.6% from March.

Exports fell 0.7% from the previous month to $148.8bn, slightly faster than the 0.4% drop in imports to $189.1bn.

The figures also showed that the trade deficit with China widened by 14.3% to $19.3bn, which is the highest level since November last year.

Earlier, China had reported a higher-than-expected trade surplus for May, which was seen as giving ammunition to those in the US who argue the Chinese yuan is undervalued.

US Treasury Secretary Timothy Geithner, speaking on Thursday to the US Senate Committee on Finance, said global economic reforms were being impeded by China's refusal to revalue its currency.

He told the US Senate Committee on Finance that distortions caused by China's stance were "an impediment to the global rebalancing we need".

The latest US trade data showed that despite the small monthly fall in exports and imports, total trade volumes in April were much higher than the lows reached a year ago, when international trade collapsed in the wake of the financial crisis.

Exports were up 19.9% from April 2009, while imports were up 23.9%.

However, trade levels still remain well below the pre-crisis levels.

http://news.bbc.co.uk/2/hi/business/10287155.stm

Edited June 10, 2010 by Booyah!

[mawilson 2,133]

Why is a trade deficit a bad thing?

I run trade deficits all the time. I buy food from a supermarket, but they don't buy any from me.

[Heracles 417]

Why is a trade deficit a bad thing?

I run trade deficits all the time. I buy food from a supermarket, but they don't buy any from me.

I think you are fluent enough in economics to understand why. The US sending all of their money to foreign countries but receiving little in return is clearly not a good thing for Americans.

[mawilson 2,133]

I think you are fluent enough in economics to understand why. The US sending all of their money to foreign countries but receiving little in return is clearly not a good thing for Americans.

Well they receive goods and services in return. Cheap Chinese #######, yes, but goods nonetheless.

[Brother Hesekiel 2,236]

Yep. We give Americans a Cash for Clunker stimulus to buy new cars. Hence many of them buy a foreign car with my taxpayers' money. They buy a new TV made in China. Levis jeans made in China. A cell phone made in China.

All it would take, and I would do that if I were the President of the United States, make Buy American more attractive.

I simply don't understand why that is so difficult to grasp. We Americans need to buy American products. And if American products are too expensive in comparison to cheap Chinese products, than tax the hell out of every product that hasn't been made in America but produced overseas using cheap child labor and slave wages until buying American will be popular again.

It's so easy a caveman can do it. Obama, obviously can't, or won't.

[Heracles 417]

You got that right. Trying to find where something is made is almost an impossible task nowadays.

Anything made in America should have a logo saying so on the front. I believe in global trade but I am against outsourcing your entire country to a foreign land, particularly not a country with a government that only looks out for itself. China will soon own the world and we are simply sitting here [like fools] buying the but you get stuff cheaper Kool-aid.

I'd rather have money from a sound economy and be able to purchase something that is better made and costs more; than be poor and be forced to buy cheap ####### from China [aka walmart].

Edited June 10, 2010 by Booyah!

[spookyturtle 9,466]

Better be careful, China will invade Australia before the US.

[Texanadian 10]

You got that right. Trying to find where something is made is almost an impossible task nowadays.

Anything made in America should have a logo saying so on the front. I believe in global trade but I am against outsourcing your entire country to a foreign land, particularly not a country with a government that only looks out for itself. China will soon own the world and we are simply sitting here [like fools] buying the but you get stuff cheaper Kool-aid.

I'd rather have money from a sound economy and be able to purchase something that is better made and costs more; than be poor and be forced to buy cheap ####### from China [aka walmart].

Labels can be easily replicated for fraudulent means. You mean this Sony TV wasn't made in New York?

Wal-Mart is a whole different topic. But suffice to say, it's a benefit to poor people both in that it offers cheap products as well as an abundance of cheap jobs. Jobs to people who can't get jobs in other higher cost places. Let's take a tie for example. Can probably buy one at Wal-Mart for 99 cents. I walked into Saks Fifth Ave here one time (had to use the bathroom) and they were selling ties for $200 each. I don't care if they were hand made by a US company, $200 is too much money for a tie. And somebody who didn't graduate from high school, can't speak English, or has a mental retardation just about certainly won't be able to get a job at Saks. This doesn't mean I shop at Wal-Mart either though. I don't like the long lines, the lack of decent air conditioning in there (stuffy and hot), the noise of people letting their 9 kids run around yelling etc. But from time to time when I'm between paychecks, it is handy to be able to buy stuff cheaply from there. Or if I just had a huge car repair bill, it's nice to save money at Wal-Mart while I make the money back.

Better be careful, China will invade Australia before the US.

http://en.wikipedia....account_balance

Australia's trade deficit is worse than just about all countries in the world.

The thing about trade deficits is that we only look at the first step of it. That being the money goes to another country. End of story. Nothing more to talk about.....But what happens to the money when it gets there? Do the Chinese simply burn the money? Throw it in the garbage can? Of course not. If that were true, then the prices of American goods would come down as the supply of money would get smaller. Or we could simply increase the printing of money and keep things relatively the same. Either way, it wouldn't benefit the Chinese since they would have no use for American currency.

So what happens to a US dollar when it arrives in China? We can look at two different scenarios.

Scenario 1) Assuming the only countries in the world that trade are China and the USA. Who in China would want to buy an American dollar? If the exchange rate is 6 yuan to 1 dollar, there will be very few people in China that would want to spend 6 yuan in exchange for 1 US dollar. Because there is nothing to buy in China for $1 that couldn't be bought with 6 yuan. Buying US goods would be too expensive for Chinese people. They'd rather buy cheap Chinese goods. And that requires yuans. So in order to sell US dollars in China, you'd have to agree to sell them for less than 6 yuan in order to get a buyer. Thus we have the worldwide phenomenon known as exchange rates. With exchange rates, the country to country selling eventually levels out to a point where both currencies are attractive to buy and sell.

But China for the most part has pegged it's currency against the US dollar. Not allowing it to be variable. This does hurt the USA. It keeps things cheaper to buy from China instead of the US. But it also hurts the Chinese. Because they can't really sell those US dollars in order to convert them into yuan at a reasonable rate. Thus the stockpile of US currency builds up in China. As inflation happens over time, the value of that money drops.

Scenario 2) Trading happens among mostly all countries in the world. In this case, we again see US dollars heading to China. The US officially has a trade deficit with China. But China could sell those US dollars to other countries were China does have a variable exchange rate. That money could then be spent in the US. Or it could be spent in yet another country......This has the basic picture of Country A money goes to Country B which goes to Country C which goes to Country D which goes to Country A. But all we see is a trade deficit between Country A (USA) and Country B (China)..... That Country A has a trade surplus with Country D is not noted.

China runs into a similar problem with holding US treasuries. When they have way more than anybody else, they're stuck with them. They can't sell them without taking a huge loss. Because the demand to buy them won't match the demand to sell them. It's like owning 80% of the stock for Wal-Mart. You can't sell the whole thing without taking a huge loss. Because there just aren't enough people willing to buy them. You'd have to lower the price. Hedge funds run into this sort of problem all the time. They can't sell off huge swaths of stock without effecting the stock price. (price goes down) Same thing with buying large amounts. The price goes up as they buy.

As for promoting a Buy American campaign.....there is really only 2 ways this can go. You can promote things to make it cheaper for US companies to sell products. Or you can promote things that make it more expensive to buy foreign products. I see very little public demand to lower corporate taxes, lower corporate property taxes etc. But there is always some public demand to stick it to foreign producers in the name of saving US jobs.

Let's take US steel for example. There has been a push for decades to subsidize it by putting a tariff on foreign steel entering the country. This makes it so there is no benefit for GM/Ford/Chrysler to use foreign steel in their car as the price would be the same or cheaper to use US steel instead. What does this do? This makes it cheaper to buy a Japanese car. In effect subsidizing Japanese auto makers. Because all you did there was make it more expensive to buy a US made car while the price of a Japanese car stayed the same.

But what about the consumer? How does the consumer benefit from taxes put on at the border on incoming products? It's not the same as getting a discount on locally made products for the difference. You don't get the 30% tax in your pocket. No, the money goes to government instead. Which may or may not be used in a beneficial way. It sure isn't being used to benefit you directly. You had to pay the full cost of it yourself. The countries with the least amount of free trade are the countries with the worst economies. There are less places for people to sell their product to and there are less places for people to buy their products from.

I noticed the above paragraph in real life when I lived in Canada. If I bought something from the USA, once the product arrived in Canada, I'd have to pay provincial sales tax and federal sales tax on the good after the exchange rate had been factored in. So for $300 USD worth of goods, I'd have to pay $390 CDN (using a 30% exchange rate) and then 14% sales tax on top of that. (Another $55). Giving me a net price of $445. Meanwhile if a US person bought a product in Canada, it would arrive with no sales tax in their home state. I asked the government why I was having to pay British Columbia sales tax and Canada sales tax on goods purchased abroad as there was no physical sale going on in either BC or Canada. They replied that it was to level the playing field among Canadian companies. But those Canadian companies didn't receive the $55 and neither did I. It also eroded the competition among provinces and states. Again, all anti-consumer.

There is a certain truth to Booyah talking about buying better made goods from the US compared to cheaper products from China. Power tools for example. A US made drill tends to last longer than a Chinese made one. I was talking to the carpet guy who was putting new underlay and carpet in our dining room the other day. (We have concrete under the carpet). He noted that Chinese screws/nails would break when trying to put them into concrete but that US screws/nails wouldn't. On the other hand, what is the difference between a pair of Chinese socks vs American socks. Little to nothing.

[spookyturtle 9,466]

There aren't any American made socks.

[Heracles 417]

Labels can be easily replicated for fraudulent means. You mean this Sony TV wasn't made in New York?

Wal-Mart is a whole different topic. But suffice to say, it's a benefit to poor people both in that it offers cheap products as well as an abundance of cheap jobs. Jobs to people who can't get jobs in other higher cost places. Let's take a tie for example. Can probably buy one at Wal-Mart for 99 cents. I walked into Saks Fifth Ave here one time (had to use the bathroom) and they were selling ties for $200 each. I don't care if they were hand made by a US company, $200 is too much money for a tie. And somebody who didn't graduate from high school, can't speak English, or has a mental retardation just about certainly won't be able to get a job at Saks. This doesn't mean I shop at Wal-Mart either though. I don't like the long lines, the lack of decent air conditioning in there (stuffy and hot), the noise of people letting their 9 kids run around yelling etc. But from time to time when I'm between paychecks, it is handy to be able to buy stuff cheaply from there. Or if I just had a huge car repair bill, it's nice to save money at Wal-Mart while I make the money back.

Buying cheap ####### from China does nothing for America or the economy. This death of industry is also why a large portion of middle America now looks like an abandoned rusted out ghost ship. Economics 101: The more you buy from foreign countries and the less you export, the poorer you and your nation becomes.

http://en.wikipedia....account_balance

Australia's trade deficit is worse than just about all countries in the world.

Interesting because:

Australia: Trade Balance rises and reaches 134 Million

Thu, Jun 3 2010, 01:34 GMT

http://www.fxstreet.com/news/forex-news/article.aspx?storyid=3b1dabd4-9312-4aa3-acdd-cc0f89de7f73

[spookyturtle 9,466]

But that is only for the month of April.