21 March 2012

A Troubling Sentence

The United States trade deficit surged in January to the widest imbalance in more than three years after imports grew faster than exports.

This is not a good sign. The US economy is predicated on false demand, by which I mean that the US, and the citizens thereof, buy a lot of things on credit.  One thing that’s true about buying things on credit is that, in general, the credit has to be paid back, usually with interest.  As Ian Fletcher noted in Free Trade Doesn’t Work (review forthcoming), the US has bought a lot of foreign goods on foreign credit, and this will have to be repaid, either with goods or with capital.  Thus, there are a lot of downright terrifying scenarios implied by the simple fact that the US has run a trade deficit for every year of the recession, and continues to increase its trade deficit even now.

In the first place, it could be that the US is maintaining its trade deficit by essentially offshoring control of its capital.  In this case, it would mean that foreign businesses and governments own US land, or US factors of production (factories, e.g., or perhaps natural resources).  This means that US policy will quite probably become more pro-foreigners, which does not bode well for maintaining the social fabric that made this country free and wealthy.

In the second place, it could be the case that the US is simply expanding its credit with nary a thought of how it will be repaid.  It will either be defaulted on, which has its own obvious negative implications, or it will be inflated out of, which also has its own obvious negative implications.

In the third place, it may simply be that the US is the least-worst place to trade right now, and so foreign producers sell on credit simply because they need to clear their inventories, and all the other potential markets are even less creditworthy than the US.  Incidentally, this would imply that the situation in Europe is worse than most suppose, and would also imply that South American and African countries are all a long way from developing into powerful market economies, which does not bode well for lovers of liberty.

No matter how it’s sliced, though, the fact that the US has not run a trade surplus at any point during the recession indicates that a) demand hasn’t reset to its true levels and that b) things are eventually going to get much, much worse.


  1. wrong metric.

    The imbalance is measured in dollars, not tons of products. So the entire amount can be attributed to the inflation of the dollar, not to weaker trade. What we are buying from them costs more. what they are buying from us costs them less.

    There is your imbalance. Unless China starts inflating their currency to match us, this will get worse.

  2. @Prof. Hale- First, value is subjective, and therefore physical volume is not equivalent. Second, currency is convertible. Third, the Chinese Yen is pegged to the dollar.