Tuesday, December 27, 2016
Bernstein (The Atlantic):
"...it’s not inherently a problem for a country to have a trade deficit. For example, a fast-growing economy pulls in more imports as it expands, which pushes a country’s international trade account toward deficit. In that context a trade deficit is good for the economy, allowing the country to consume and invest more than if it maintained balanced trade. This was the story in 2000 when, after four years of strong growth, the American economy had an unemployment rate of 4 percent and a trade deficit that amounted to 3.7 percent of GDP.
What effect does all this have on American workers? Trade deficits, even in times of strong growth, have negative, concentrated impacts on the quantity and quality of jobs in parts of the country where manufacturing employment diminishes. [...] There is, for example, a lot of research confirming that de-industrialization in the Rust Belt is partly a result of the fact that America meets its domestic demand for manufactured goods by importing more than it exports. [...] And trade imbalances have repercussions far beyond the labor market. They can produce significant macroeconomic distortions, and those who view deficits as benign frequently overlook this. Most importantly, as Ben Bernanke noted over a decade ago, a trade deficit can have a role in producing financial-market bubbles and the devastation that’s caused when those bubbles burst. The problem arises when other countries suppress spending and investment, thereby boosting their savings rates and their trade surpluses. By the rules of basic accounting, those surpluses have to flow somewhere, and many flow into America. This further strengthens the demand for and value of the dollar, making American exports less competitive—and thus exacerbating the trade deficit. In the 2000s, these trade patterns helped provide cheap capital that, in tandem with inattentive regulators, inflated the housing bubble. Almost a decade later, the country is still recovering.
The goal of trade policy should thus be to push back on U.S. trade deficits without distorting current trade flows. Large tariffs like the ones Trump has proposed won’t work, nor will preventing offshoring one company at a time, as he did with some of the jobs that the air-conditioning company Carrier was going to shift to Mexico. There are better ways to improve the U.S.’s trade balance—most importantly, the government could take steps to prevent America’s trading partners from manipulating their currencies to make their exports to the U.S. cheaper and the U.S.’s exports to them more expensive. "