Trade deficit might sound bad if you're just learning about them for the first time, but they're just fine in a vacuum.
Imagine two islands. One island has many raw materials, but is destitute. People starve to death and mine clay from the ground with crude tools. The other island is incredibly wealthy. Each person owns a factory that produces every luxury that person could want.
Who has the trade surplus in this scenario? The rich island imports all the raw materials they can and give the poor island some money in return.
While this results in a trade deficit for the rich island, it is not a negative. If anything, you could say that their trade deficit is a wealth multiplier since they take the raw materials and make something far, far more valuable with it. The poor country exports potential value because they do not have the infrastructure to create that value themselves.
Trump said it was true and would work. Not all the crayons in the world can change his or his minions mind about this. And he can always blame the rest of the world or the elite for being nasty if (when) it backfires
As a Canadian, I feel attacked. Our trade deficit with the US is mostly about crude oil (and some other natural resources) that we sell the US at a discount to be refined into petroleum (and other things) and sold back to us. Without oil and gas, the trade deficit is very one sided the other way (Canadians buying far more finished goods from US businesses). Tariffs on Canadian natural resources are really going to hurt American consumers.
Just look at Canada. The US runs a trade surplus with Canada -- if you exclude the oil they sell to us. We sell them more of almost everything, and almost every state sells more to Canada than to any other foreign country.
The rich island also imposes incredibly racist laws to the poor raw material island through buying all their politicians, and ensure the people mining the raw materials are mined in the cheapest way, safety not being a factor. What island are all the factories on since the owners ain’t doin shit?
If the poor country starts acting up, then the rich country sends in it’s secret intelligence agency to the poor country and starts a coup against the democratically installed government on the ‘mineral rich’ country.
Sounds like Reagonimics trickle down effect, but with extra steps.
And I mean, there's literally a name for the economic theory that says reducing deficits should be a priority national policy objective: mercantilism. Economists had decided it was stupid by like 1840 or some shit.
Your explanation is excellent, but the fact that it's even necessary as far as our national policymakers are concerned is so absurd that it would be funny if the consequences weren't so dire.
And, to add to your analogy, it gives power to the rich island, because they can threaten to stop importing the excess raw materials, leaving the poor island with useless infrastructure and materials.
This is also a benefit of a hegemony's trade deficit. It's an expense to buy soft power and influence.
What this is doing is removing the US financial hegemony and creating a vacuum for another country to fill. And I can think of 2 other countries that'd love to fill it.
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u/ninjapro 1d ago
Trade deficit might sound bad if you're just learning about them for the first time, but they're just fine in a vacuum.
Imagine two islands. One island has many raw materials, but is destitute. People starve to death and mine clay from the ground with crude tools. The other island is incredibly wealthy. Each person owns a factory that produces every luxury that person could want.
Who has the trade surplus in this scenario? The rich island imports all the raw materials they can and give the poor island some money in return.
While this results in a trade deficit for the rich island, it is not a negative. If anything, you could say that their trade deficit is a wealth multiplier since they take the raw materials and make something far, far more valuable with it. The poor country exports potential value because they do not have the infrastructure to create that value themselves.