President Donald Trump and Senator Bernie Sanders Stand Shoulder to Shoulder on Trade

[Tiny]

Both Trump and Sanders hate NAFTA. They both hated the idea of the Trans Pacific Partnership. They both believe trade takes jobs away from Americans. They see eye to eye on trade with China. They're not afraid of trade wars. Neither has the patience, or perhaps the intellect, to understand the evidence for the benefits of trade, or the relationship between savings, investment and the current account deficit.

Trump and Congress will soon be running $1 trillion annual federal government budget deficits. Sanders and Congress would likewise be running trillion dollar deficits. Neither Trump nor Sanders understands that we're going to continue running trade deficits as long as we're running huge budget deficits.

To the esteemed far left Democrats among us, why do you hate Trump? It's not just that he agrees with you on trade. He also is dead set against doing anything to Social Security or Medicare that would keep them from going bankrupt. He supports the strongly "progressive" (redistributionist) nature of our tax system for individuals, except of course for carve outs for special interests and certain businessmen like real estate developers. Yes, my progressive friends, you got Trump. You could have gotten Ted Cruz or John Kasich. You should be grateful.

[dilbert firestorm]

here's the thing about trade. trade is beneficial except when its not. when one country is running trade deficeits for decades. this suggest that something is amiss with trade policy.


most trades are not fair, countries deny access to their markets or provide large subsidies so their cheap products can dominate another market, so tariffs are necessary to balance things out.

[Tiny]

Originally Posted by dilbert firestorm

here's the thing about trade. trade is beneficial except when its not. when one country is running trade deficeits for decades. this suggest that something is amiss with trade policy.


most trades are not fair, countries deny access to their markets or provide large subsidies so their cheap products can dominate another market, so tariffs are necessary to balance things out.

Dilbert, This is exactly what Trump and Sanders believe, and it's wrong. You have a good excuse, you probably don't have a strong background in economics. Trump, who's the leader of the free world, doesn't have the same excuse. He's got an army of people helping him who know better. Sanders has no excuse either.

Here's why.

By definition, the current account balance (CB) equals the change in savings (S) less the change in investment (I). The current account, in addition to the surplus or deficit in goods and services, also includes small amounts for net investment income, remittances from foreign workers, and foreign aid.

So the equation is

CB = S - I

This is not theory, it's mathematics. It's like 1+1=2. If you want to dig into this google "Current Account Savings Investment" and be prepared to spend a couple of hours.

You and Trump and Sanders believe, "When one country is running trade deficeits for decades, this suggest that something is amiss with trade policy."

You're concentrating on the left side of the equation and ignoring the right side.

Anyway the reason that the USA perennially runs a current account or trade deficit, and the reason certain other countries like Singapore, Switzerland and Germany run a current account/trade surplus is primarily because of the right side of the equation, not the left side as you think. The people who live there save more, unlike many Americans who spend every dime they make. The governments of those countries usually don't run big budget deficits, which decrease national savings. Our federal government is dependent on foreigners to finance our budget deficit. Say the budget deficit is around 5% of GDP. Say instead of getting the Chinese and other foreigners to buy government bonds, the federal government funds all their borrowings domestically. One way to have that happen would be if consumption goes down by 5% of GDP and goes into savings instead. That could throw us into a huge recession. Alternately, the 5% could come out of the pocket of business, which would hurt our growth prospects going forward. The preferred alternative is to reduce government spending, but that's not going to happen with the politicians we've got in control. In summary, if you want to decrease the trade deficit, you're going to have to increase savings or decrease investment.

Here's some empirical evidence. This is a list of the 10 countries in the world with the highest current account surpluses in the world, from the CIA factbook. Please remember that by definition the current account surplus is savings minus investment. And also a list of their weighted average tariffs on all goods according to the World Bank. I've included the USA for comparison.


Country Current Savings-Investment Avg Tariff
Account as % GDP
Balance
as % GDP

Singapore 20.81% 20.81% 0%
Taiwan 12.36% 12.36% Unknown
Netherlands 9.62% 9.62% 1.6%
Kuwait 9.28% 9.28% 3.0%
Germany 8.49% 8.49% 1.6%
Papua 7.53% 7.53% Unknown
Switzerland 7.21% 7.21% 0%
South Korea 7.06% 7.06% 7.7%
Denmark 6.99% 6.99% 1.6%
Norway 6.97% 6.97% 1.0%
USA -2.56% -2.56% 1.6%
World 0% 0% 2.9%

The countries that have large current account (trade) surpluses don't have abnormally large tariffs. The majority have average tariffs around the same or lower than the USA.

If Trump and Congress were serious about reducing the trade deficit, they'd reduce the government budget deficit. They either don't know any better, or they don't care. Given the liabilities they're racking up, via the budget deficit and entitlements, I guess we aleady know they don't care.