The Trade Deficit
pharaoh drowned in a red sea, so will we
America has run a trade deficit (meaning we bought more from other countries than we sold to them) ever since 1974, and it is only getting bigger. [1]
In 2015, the deficit was over $736 billion—$4,845 per employed person. If it were a country, it would be about as large as the Netherlands, South Africa, or the Philippines.[2] If that sounds bad, you ain’t seen nothin’ yet. America is bleeding cash: we lose between $80 and $120 billion dollars a year in remittance payments (when people work in America, but send their money back to their homeland),[3] $43 billion a year in foreign aid and UN subsidies,[4] $105 billion a year in interest payments to foreign creditors, [5] and $300 billion a year in stolen intellectual property (things like Chinese knock-off products or stolen music).[6] All totaled, we lost over $1.3 trillion last year alone.
That is 7% of our GDP. Gone.
This happens every year.
Over the last two decades the cumulative trade deficit (not including the other stuff) was over $11 trillion, or $81,725 per employed person during the period—double what the ordinary person makes in a year. To put this into perspective: that is about as large as America’s entire GDP in 2003.
We are not out of the woods yet. The deficits are growing. Just look at our trade with China: in the last twenty years the deficit grew from just under $30 billion to over $365 billion. Or look at Mexico: since Bill Clinton signed NAFTA in 1994 (and sold out his country to the globalist machine), trade with our southern neighbor soured from a modest surplus of $1.3 billion to a massive deficit of nearly $60 billion.
It looks like free trade is working, for Mexico.
always keep good company
There is a stark difference in the type of trade that occurs between America and developed nations, as opposed to developing nations.
A survey of our 20 largest trading partners reveals a few interesting facts. First, we are almost twice as likely to run a trade surplus with a developed country as with a developing country; second, the surpluses with developed countries are, on average, larger as a percent of total trade volume than are surpluses with developing countries (39.2% vs 10.4%); and third, the deficits with developing countries are larger, as a percent of total trade volume, than with developed countries (35.1% vs 26.6%).
In short: we are more likely to run a big surplus with a developed country, and we are more likely to run a big deficit with a developing country. We should rethink our trade partners. [7]
paying the piper
There are 4, and only 4, ways for the US to acquire foreign goods:
(i) we can acquire them for free (theft or gifts), this option is (sadly) irrelevant;
(ii) we can trade for them with our current output (exchanging newly made goods or services), which results in an even trade balance;
(iii) we can trade for them with our past output (by selling our assets, like stocks, buildings, land, for their goods), which results in a trade deficit;
(iv) or we can trade for them with our future output (selling our debt, like bonds or US Treasury Bills, for their goods), which results in a deficit.
Since we have a trade deficit, we must be dealing with options (iii) and (iv). In both options, the US must sell assets or debt to foreign entities (to acquire foreign currency), in exchange for goods (which are purchased in said currency); nothing is for free.
That is the theory, here is the proof.
As for option (iii): the US sells enormous quantities of assets (past production) to pay for imports. Foreign investors now own 20% of all US equities, up from 12% in 2007. [8] They are buying up our property too. In 2015 alone, foreign investors bought over $100 billion worth of US properties.[9] You wonder why houses are so expensive? You wonder why rent keeps going up? This is why.
As for option (iv): the US sells astronomical amounts of debt (future production) to pay for imports. Debt is especially pernicious because we must eventually pay back both the principle and the interest—this means we pay extra for whatever we buy using debt. Additionally, we can only sell so much debt before the interest payments crush our economy, and hinder our ability to buy things in the future. We are fast-approaching this limit.
Right now, 43% of all of America’s corporate bonds are owned by foreigners. [10] Likewise, foreigners own 47% of our $13.5 trillion national public debt.[11] Not only do we eventually need to pay this principle back, but we also owe interest. In 2006, America became a debtor nation, meaning that we pay more in interest than we are paid. [12] The last time this happened was during the Great Depression. The results are ugly: in 2015 we paid foreign entities $105 billion more than they paid us—that is enough to fund 5 NASAs.[13]
Soon we will run out of stuff to sell. I would start hording soup cans if I were you.
[1] Unless otherwise stated, all trade data is from the US Census Bureau, “Trade in Goods, 1985-2016.”
[2] World Bank, “GDP by PPP Statistics.”
[3] Tomlinson, “Revealed: How immigrants in America are sending $120 BILLION to their struggling families back home.”
[4] Amoros, “The US spends $35 billion on foreign aid… but where does the money really go?” & Schaefer, “America, we pay way too much for the United Nations.”
[5] United States Department of the Treasury, Bureau of the Fiscal Service. “Interest Expense on the Debt Outstanding.”
[6] National Bureau of Asian Research, IP Commission Report: the report of the commission on the theft of American intellectual property. 2.
[7] Graph is author’s interpretation of data drawn from: United States Census Bureau, “Trade in Goods, 1985-2016.”
[8] Jackson “Foreign Ownership of US financial assets: implications of a withdrawal.” 1.
[9] Frank, “Wealthy Foreigners Bought $100 Billion in US Real Estate.”
[10] Jackson “Foreign Ownership of US financial assets: implications of a withdrawal” 1.
[11] The debt is destroying America. It is the biggest it has ever been, even compared to both World Wars and the Civil War.
And yes, the debt is over $19 trillion, but $5.5 is held by other US government agencies. See: Fix the Debt Coalition Inc. “Q&A: Everything You Need to Know About the National Debt.”
[12] Bureau of Economic Analysis. “UN Net International Investment Position, First Quarter 2016.”
[13] United States Department of the Treasury, Bureau of the Fiscal Service. “Interest Expense on the Debt Outstanding.” & NASA. “Fiscal Year 2015: Budget Estimates.”