I went out for coffee the other day with a liberal friend of mine who was concerned about the U.S. trade deficit with China. He tried to persuade me that it is a problem, but I just don't get it. There are so many real problems in the world, why would anybody spend a moment worrying about the trade deficit.
I'm not an economist (and if I'm wrong about this, I invite any bright economists out there to explain why) but as I reflect on my life, I realize that my family has for years had a very serious trade deficit with the local supermarket. We pay the market money and the folks there give us food. However, we have never sold anything back to Ralph's; but if this is a problem, I don't see why.
But maybe it's different between sovereign countries. Maybe because countries can mint their own money, that makes a difference. I'm not sure why it would, but let's assume it does.
So, basically, the complaint is that we are buying more from China (or whomever) than China is buying from us.
But it seems that there are only two possible things that can happen with the dollars we send to China: 1) they are used to purchase U.S. goods and services, possibly after being traded through many countries, or 2) they are never used to purchase U.S. goods and services.
So, if someone eventually buys U.S. goods or services with those dollars, then the trade deficit "problem" is solved.
On the other hand, if the Chinese bury the dollars in a wet hole in the ground until they rot, then the U.S. has obtained some nice products or services from China, and all the Chinese got out of the deal was some rotted paper. I think we Americans would be happy to have a trade deficit like that forever! We could send the Chinese worthless paper and they'd give us lots of nice stuff.
Unfortunately for that bright idea, the Chinese are not such idiots.
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