1. NS3040 Fall Term 2018 Trade and Trade Deficits
Europa brazil economy

2. Five Big Truths About Trade I
Alan Blinder, Five Big Truths About Trade, WSJ, April 22, 2016
Five issues on which overwhelming majority of economists, conservative and liberal agree.
1. Most job losses are not due to trade
Every month roughly five million new jobs are created and almost that many are destroyed
International trade accounts for only a very small share of job churn
Vastly more derives from competition and technological change which literally creates and destroys entire industries.

3. Five Big Truths About Trade II
2. Trade is more about efficiency and hence wages than the number of jobs
Trade is not mainly about creating or destroying jobs
Its about using labor more efficiently – key to higher wages
Catch – whenever trade patterns change some people will gain (either jobs or wages) but others will lose
Federal government should help out more but it doesn’t
If there are losers from trade it is usually because the government has not put in place policies to maximize benefits and minimize costs
3. Bilateral trade imbalances are inevitable and mostly uninteresting.
I run a trade deficit with PG&E, but a trade surplus with NPS which I sell teaching services but buy little
Should I seek balanced trade with PG&E or NPS?

4. Five Big Truths About Trade III
4 Running an overall trade deficit does not make us “losers”
U.S. multilateral trade balance – balance with all treading partners has been in deficit for decades
Does that mean our country is in some sort of trouble?
Probably not.
People who claim that our trade deficit kills jobs need to explain how the U.S. managed to achieve 4% unemployment in when our trade deficit a larger share of GDP than today.
Trade deficit means foreigners send us more goods and services than we send them
To balance they get our IOUs – U.S. Treasury bills, corporate bonds or other private debt instruments

5. Five Big Truths About Trade IV
One exceptional country – the U.S. is the source of the world’s major international currency, the U.S. dollar.
Since ever-expanding world commerce requires ever more dollars, the U.S. must run trade deficits regularly
Sometimes called our “exorbitant privilege” since we get to import more than we export
5. Trade agreements barely affect a nation’s trade balance
Much of the political angst is directed not at trade in general but specific international trade agreements
TPP will allegedly ship U.S. jobs aboard as well
Some truth here, but jobs will also be created

6. Five Big Truths About Trade V
However “trade” and “trade agreements” are not synonymous
We traded with Mexico long before NAFTA, and that trade was growing
Our trade with China has increased rapidly in recent decades without a succession of trade agreements
Reality, but least understood, a nation’s overall trade balance is determined by its domestic decisions not by trade deals
Borrowing from abroad is the booking counterpart of running a trade deficit
One implies the other

7. Five Big Truths About Trade VI
Amount we borrow must equal the gap between our total spending as a nation (including government spending) and our total income (including the government’s income from taxation)
Spendthrift nations like the U.S. have trade deficits because we don’t save much
These saving decisions are domestic – they do not derive from trade agreements
Summing Up -- America’s trade deficits stem from
Dollar’s international role
American decision not to save much
Not from trade deals