Trade deficit is good for US; cutting it invites bankruptcy
A good friend once explained debt thus: If a person has more money going out of his pocket than coming in, over time he will go bankrupt – the same goes for a country. He was sincere in this analysis, but he was also sincerely wrong.
Dollars leave the United States to purchase imports – and then? They come back as investments, real estate, hotels, shopping malls, plants and equipment, equities, and bonds (treasury and government and corporate).
In total, these investments more than balance the US trade deficit. Over the last 40 years of deficit, the US has prospered like few other countries. Everybody wants a piece of the US action! However, the US administration has now seen fit to reduce these deficits with China, Japan, Germany, Mexico and others. When these countries had trade surpluses with the US, they were well inclined to repay the kindness by investing in the US. China and Japan are among the largest investors in US treasuries. Should these deficits be materially reduced, will these governments still be predisposed to invest in the US?
There is a wonderful saying: give and you shall receive. Many wealthy people give a large portion of their income to charity. A generous multimillionaire who lived in Thailand for a while called it karma.
The Romanian dictator Ceausescu used protectionism to bolster local industry, in which he invested heavily. He forced his people to save and forbade them from buying imports. He successfully reduced the fiscal and trade deficits, but created such a low standard of living in the country that his people forced him out of office. Protectionism works for a limited period only. It only incites retaliation!
Alf Haupt
