U.S. Trade Deficit

I swear, the bs on this topic is going to start a war. Here is how Greg Robb reported the statistic on Marketwatch.

WASHINGTON (MarketWatch) — The U.S. trade deficit widened by 5.9% in December to $40.6 billion, the Commerce Department said Friday. The trade deficit was below the consensus forecast of Wall Street economists of a deficit of $42.0 billion. Imports rose faster than exports in December. As a result the deficit for the year totals $497.8 billion, up 32.8% from $374.9 billion in 2009. The U.S. trade deficit with China widened to $20.7 billion in compared with $18.1 billion in the same month last year. The deficit with China hit a record high $273.1 billion in 2010.

“deficit” and “gap” imply something bad happened, as if China or some other country are executing something sinister plots to undermine the U.S. economy.  It is not the case. 

First off, don’t forget, this is happening all around the world with other countries.  Trade and these statistics are not specific to the U.S.

Next, global supply chains make accounting for the manufacturing of something extremely difficult, especially for government.  If parts are made in 5 different countries, the raw material comes from another 5 different countries, but the final product is assembled in China, who made the product and how does it get accounted for?  The answer is that the accounting is not that granular.

Next, I and I suspect you do too, buy food from grocery stores, restaurants, etc.  You have some kind of current account deficit with these firms because you gave them money and they gave you food.  It’s not a problem with these transactions and it’s not a problem with global transactions of similar type but larger scope.

Next, we as individuals trade all the time.  You do no make your own housing, vehicle, food, clothing, iPod, Blackberry, PC, shovel, eyeglasses, home furniture, grow your own crops or chickens, get your clothes dry-cleaned — right?  Maybe you make some of these things on your own as a hobby or maybe you help produce them as part of your job, but you do not make all of them.  No, you pay people to do it.  You get the product or service, they get the money.  Even steven, no deficit, and you are both better off.


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