Co-blogger Kevin Corcolan has a great recent post asking me to rebrand the “trade deficit” that my beloved professors Don Bodrow and Dan Klein have similarly similar. They are many benefits in their discussion. I argue that the situation is even better than they suggest.
Certainly, consumption is the ultimate goal of all production. Without consumption, production is worthless. We work to achieve the end of our sub-desires, not our paths. But what’s worth is investment. Investing in an economist is not about purchasing stocks or bonds (although it also hosts valuable activities), but about purchasing capital equipment, homes and other things that lead to production. More necessary, investment is “the production or construction of capital goods that provide the ‘flow’ of future services’ (Economics: Private and Public Choice by James Gwartney, Richard Stropa, Russell Sobel, David Macpherson, 17th Edition, p. 137). Therefore, investment is key to driving future economic growth.
Imports beyond exports mean that more desired goods are flowing into the country. Similarly, that means more investment funds are flowing into the country as well. Foreigners want American products. The larger the savings supply, the lower the interstrate (all others are held equally). In concension, American businesses and individuals can invest more than they do as the price of money drops. This means more business creation, more homes, university degrees, more retrit, more upgrades, more research, its inadequate production, innovation, and general welfare events. Insalad of the potential of Al production can be strengthened with foreign savings, as it is limited only by domestic savings. Trade allows us to consume beyond the frontier of production possibilities and advance the frontier of production possibilities. While using fewer resources.
Political efforts to reduce the trade deficit will kill the golden geese. Borrowing costs will rise, investment will decrease, and living standards will also decrease. There are oceans of trillions of dollars of wealth that have been wiped out by the “liberation day” tariffs. The Ministry of Finance’s bond rate is rising. Second, slacking in economic growth and increasing borrowing costs will actively curb the administration’s prolonged target of correcting fiscal ships.
In short, I proposed to strengthen Kevin’s rebranding as “consumption and investment surplus.” The trade deficit helps America become wealthy not only in the present (consumption) but in the future (investment).
Poetry While working on international trade lectures this semester, I came across an interesting paradox. America makes more money from investments abroad than foreigners make money from investments in the US. However, trade deficits and net investment positions are negative (impressing that foreigners are investing in the US more than they are overseas). What is the explanation for this paradox? The US is in a safe haven, so foreigners should put their money here. But Americans are searching for a combination of risk and safety, so while they stay here, charity has higher interest rates overseas. Constently, American Investments earns higher returns than foreign investments in the United States. This position will be reversed at a bad time. Foreigners will make more money from ESIRE US investments than US citizens make overseas, as US citizens bring their money back to safe shelters and risky investments won’t regain bread. Why do US investments generate higher returns than foreign investments in the US? (CBO, 2005) and new evidence of excessive returns on US foreign portfolios (Bertaut, et al, 2024).
