Are Trade Deficits a Good or Bad Thing?

     I can never follow this question. Here is Warren Mosler:gj

     "Imports are real benefits and exports are real costs. Trade deficits directly improve our standard of living. Jobs are lost because taxes are too high for a given level of government spending, not because of imports."

     http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf

     I know that is the opposite of what mainstream economists seem to think. 

     "A trade deficit, in fact, increases our real standard of living. How can it be any other way? So, the higher the trade deficit the better. The mainstream economists, politicians, and media all have the trade issue completely backwards. Sad but true."

    "To further make the point: If, for example, General MacArthur had proclaimed after World War II that since Japan had lost the war, they would be required to send the U.S. 2 million cars a year and get nothing in return, the result would have been a major international uproar about U.S. exploitation of conquered enemies. We would have been accused of fostering a repeat of the aftermath of World War I, wherein the allies demanded reparations from Germany which were presumably so high and exploitive that they caused World War II. Well, MacArthur did not order that, yet for over 60 years, Japan has, in fact, been sending us about 2 million cars per year, and we have been sending them little or nothing. And, surprisingly, they think that this means they are winning the “trade war,” and we think it means that we are losing it. We have the cars, and they have the bank statement from the Fed showing which account their dollars are in."

   "Same with China - they think that they are winning because they keep our stores full of their products and get nothing in return, apart from that bank statement from the Fed. And our leaders agree and think we are losing. This is madness on a grand scale"

    Compare this to this to a NYTimes editorial:

    "The world economy is falling back on very dangerous habits. The United States is tentatively emerging from recession but is still at risk of another dip. Yet trade statistics released last week indicate that American consumers are sucking in large quantities of imports as spending recovers, while weak demand in the rest of the world is crimping American exports."

  "Meanwhile, China is mopping up demand everywhere you look with its artificially cheap supply of goods. Germany, the world’s other exporting power, is cutting its budget and relying on foreign demand to drive its economic rebound. This isn’t sustainable."

    "The bulging American trade deficit means that rising consumer demand is flowing to suppliers overseas rather than fueling growth at home. The American economy is too weak to carry this load. The recent trade data led economists to slash growth estimates for this year."

     "For the global recovery to continue, domestic demand must revive around the world. Other leading countries must do more to stimulate their own demand. And China cannot keep hogging the global export market."

 http://www.nytimes.com/2010/08/16/opinion/16mon1.html

     By the way, Krugman agrees with this post entirely-with the proviso that they don't go far enough-threatening sanctions isn''t enough we have to do them or China won't believe it. 

     http://krugman.blogs.nytimes.com/2010/08/16/killer-trade-deficits/

     So presumably, we should celebrate this but the Chinese think they're screwing us as much as we think they are. 

     Normally, the way people think about it-certainly on CNBC-is that eports are good for multinationals and this benefits the nation. True, it isn't good for domestic companies but evidently the 'surplus' for the multinationals is larger than the loss for the domestic firms. 

    I still don't totally get it: if the Japanese sell us 2 million cars we get the cars but they get millions or billions of dollars with which they can buy what they need-ie, it's trade. So how do we gain? Isn't it a wash?

   Sumner on trade deficits:

   " Currency devaluation doesn’t work by boosting the trade balance, it works by boosting domestic nominal value added, i.e. NGDP, which is unambiguously positive.  The huge US depreciation of 1933 initially made the trade balance “worse” even as output soared in response.  There’s a whole literature on the income effect.  Lars Christensen has a new post discussing other examples."

  http://www.themoneyillusion.com/?p=15179

 "Ive noticed that intellectuals like to talk about “imbalances,” especially pundits interested in international issues.  I don’t see how it’s a useful concept, although I’m willing to be enlightened.

I do understand the concept of market failure, or bad public policy.  But I don’t see how a term like ‘imbalances’ adds anything to the statement that “policy X reduces aggregate welfare.”

  "When I lived in Queensland back in 1991, the Australians I met were very worried about their chronic current account deficits surpluses.  And they’ve run huge CA deficits every year since.

On the other hand Japan has run current account surpluses year after year, decade after decade.

In a deeper sense there is no such thing as exchange imbalances, all international transactions merely involve the swapping one type of product (goods and services) for a difference type of product (assets.)  Why should we care?"

   "Oddly Japan is almost universally viewed as a country with a bleak future, despite its CA surpluses.  Its population is aging fast, and beginning to decline.  Its nominal GDP is trending downward as its public debt keeps increasing.  On the other hand Australia is a relatively fast growing country, with a high level of immigration and a trivial public debt."

   "So what do the persistent CA deficits tell us about Australia, and what do the persistent CA surpluses tell us about Japan?"

     http://www.themoneyillusion.com/?p=19530

     So there are lots of varying opinions on trade deficits. Mosler might agree more with Sumner here on trade deficits? But of course, Sumner had to get into public debt.