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Trade Deficits in the Context of State-Managed Trade and Systemic Debt
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In the turbulent times of Trump, it seems like an eternity, but last week, Gary Cohn, the president’s chief economic advisor, resigned from his position. President Trump had asked “Cohn directly” if he could be relied on to help implement tariffs. Cohn said no, by Bloomberg Politics’ telling. Hours later, he was out.

Asked and answered—also in the presence of Mr. Cohn, back in November of 2017—was another important question. At the Wall Street Journal CEO Council, august CEOs, a room full of them, were asked if they’d increase capital investment in American workers, pursuant to Trump’s business-friendly tax plan. A pitiful few raised their hands.

Globalist Gary, as he was known by the near-extinct Bannon faction of the West Wing, remained unperturbed. Formerly chief operating officer of Goldman Sachs, the affable Democrat had formed part of the Kushner-Cohn opposing axis, in this fractious White House.

Cohn had helped pass the Trump tax plan, which—judging by the election outcome in Pennsylvania’s Trump friendly, 18th congressional district—might not have been a legislative chart-topper.

For Mr. Cohn, it’s always been big business above all. But Trump’s promise to pass tariffs, the kind Mitt Romney proposed in 2012, and George Bush passed in 2002—Cohn would not tolerate because, as big media keeps mouthing, “he’s a free-trade guy.”

Though it’s true that Cohn’s successor, TV economist Larry Kudlow, similarly bills himself “a free-trade guy”; untrue is the idea that the US, or any country, for that matter, practices the ideal of free trade.

Free trade is an unknown ideal.

What goes for “free trade,” rather, is trade managed by bureaucratic juggernauts—national and international—central planners concerned with regulating, not freeing, trade; whose goal it is to harmonize labor, health, and environmental laws throughout the developed world. The undeveloped and developing worlds generally exploit and pollute as they please.

One of the promises Candidate Trump had made and hasn’t yet violated was to simply make these statist organs and trade agreements work for the American people. To wit, the president believes in reducing trade deficits.

Far be it from me to endorse tariffs as a means of reducing trade deficits. I am only here questioning the totemic attachment free-traders have to trade deficits, given that Americans live under conditions of systemic debt and state-managed trade that is anything but free.

If free trade is an unknown ideal, it is quite appropriate to question the alleged glories of an aggregate, negative balance of trade, in this “rigged system,” as Trump would say.

As to systemic debt: Yes, libertarians ought to oppose tax increases, which is what tariffs are. We hold that voluntary exchanges are by definition advantageous to their participants. Trader Joe’s, my hair stylist and the GTI dealer—all have products or skills I want. Within this voluntary, mutually beneficial relationship, I give up an item I value less, for something I value more: a fee for the desired product or service. My trading partners, whose valuations are in complementary opposition to mine, reciprocate in kind.

Ceteris paribus (all other things being equal), there’s nothing wrong with my running a trade deficit with Trader Joe’s, my hair stylist or my GTI dealer, as I do—just as long as I pay for my purchases.

And there’s the rub: The data demonstrate that we Americans, in general, are not paying for our purchases.

Americans, reports, actually have more debt relative to income earned than Greeks. “Indebted U.S. households carry an average credit card balance of \$15,706, according to NerdWallet.”

Corporate America is likewise heavily leveraged.

The Federal government is the definition of debt. The U.S. national debt is over \$20 trillion without federal unfunded liabilities. Those exceed \$210 trillion, by Forbes’ 2017 estimate. Total public debt as a percent of Gross Domestic Product, announced the Federal Reserve Bank of St. Louis, is 104 percent.

Our improvident government’s debts, liabilities and unfunded promises exceed the collective net worth of its wastrel citizens.

Given these historic trends, it seems silly to dismiss the yawning gap between U.S. exports and U.S. imports as an insignificant economic indicator.

Because of decades of credit-fueled, consumption-based living, the defining, current characteristic of our economy is debt—micro and macro; public and private. Unless one is coming from the pro-debt Keynesian perspective, is this not an economically combustive combination?

Non-stop consumption—enabled by government monetary and regulatory policies—has coincided with a transition from a manufacturing-based economy to a service-based one; and from an export- to an import-oriented economy. For some reason, this reality continues to excite the febrile imaginations of Beltway libertarians.

Libertarians at CATO, for instance, love that, historically, America’s annual trade deficit has been rising: “[t]rade deficits do not cost jobs. Rising trade deficits,” they say, “correlate with falling unemployment rates. Far from being a drag on economic growth, the U.S. economy has actually grown faster in years in which the trade deficit has been rising than in years in which the deficit has shrunk.”

Much to CATO’s delight (presumably), the U.S. Bureau of Economic Analysis announced, in 2017, that “the goods and services deficit was \$53.1 billion in December, up \$2.7 billion from \$50.4 billion in November, revised. … Year-over-year, the average goods and services deficit increased \$6.1 billion from the three months ending in December 2016.”

In arguing their point, trade-deficit deniers point out, correctly, that America ran trade surpluses during the Great Depression. But from the fact that the US had trade surpluses during some very bad times—it does not follow that the nation’s current trade deficit is inconsequential as economic indices go. It could just as well mean that the economic fundamentals today are worse than they were during the Great Depression; since this country has never before been as deeply and systemically in hock as it currently is.

Far from comprising discrete parts, the economy is ineluctably interconnected. The trade deficit belongs to a nation enmeshed in debt.


Contra the Keynesians who control the economy—and whose thinking many free-traders appear to be propping up intellectually, in their indifference to credit-fueled consumption—real wealth is created not by printing paper money and galvanizing the globe’s governments to buy our government’s bonds, but by the production and consumption of products.

Considering that an abundance of goods, not money income, is what makes for an increase in wealth; it’s not unreasonable to want to see a natural shift take place in the U.S., from an economy founded on consumption and credit to one rooted in savings, investment and production.

Ilana Mercer has been writing a weekly, paleolibertarian column since 1999. She is the author of “Into the Cannibal’s Pot: Lessons for America From Post-Apartheid South Africa (2011) & “The Trump Revolution: The Donald’s Creative Destruction Deconstructed (June, 2016). She’s on Twitter, Facebook,Gab & YouTube

• Category: Economics • Tags: Donald Trump, Free Trade 
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  1. anon • Disclaimer says:

    Good thinking.

  2. Mefobills says:

    Yes, libertarians ought to oppose tax increases, which is what tariffs are. We hold that voluntary exchanges are by definition advantageous to their participants.

    Tariffs = good when a nascent industry needs protection in order to take-off. Tariffs = bad when a nations industry are monopoly pricing. Low prices are the goal.

    Libertarian economic theorizing doesn’t comport with actual history. Industrial Capitalism of Fredrick List in Germany, and Peshine Smith of America, both induced a dramatic increase in economic well being for their respective countries. Japan watched Germany and America closely and adopted industrial capitalism “External Tariffs low Internal Tariff” ideas,. Japan went from being a feudal economy to being an industrial economy in one generation..

    Contra the Keynesians who control the economy

    Keynes understood defects of corporate banker credit/debt driven economies. Keynes even noted during WW2 that if private debts declined, that would be proof of efficacy of government stimulation. The great depression was due to private debt buildup during 20’s, especially due to bank credit creation (upon new debts) funneling toward the stock market. In run up to war, and during the war, U.S. spent exogenous treasury money (created outside of the banking system) to fund new industry. This went on to pay wages, to then pay off private debts. This is how U.S. emerged from war with low private debt levels.

    So, it is a perversion of Keynsian theory to suggest he would have been for high debt levels, especially when he was concerned about reducing build up. Keynes main idea was to save money during heady economic times, and stimulate during depressions/recessions.

    Finance Capitalism (not List’s Industrial Capitalism) business model is to make debt instruments in order to make profits. Finance Capitalists harvest industry, patents, land and other real assets with swaps in order to cancel debts formerly created from nothing. Swapping depressed real assets for debts is part of the magick of (( Finance Capitalism)) which is nothing more than a sophisticated usury system.

    Industrial Capitalism by contrast uses a countries own sovereign credit to build industry and improve its commons, making citizens more efficient.

    Libertarians are apologists for “free trade” when instead a real free market is one free from rents and unearned income. Oh the horrors, a government that intervenes to drive prices lower!

    To get rid of rentiers, usury, and to squash unearned income sometimes REQUIRES TARIFFS. Proper tariff application in turn require a government manned by people with economic IQ’s of more than two digits.

    It is beyond question that a national economy like that of U.S., requires both national steel and aluminum producers.

    You are not a country if you don’t have borders, language, culture – and an economy with as much autarky as is reasonable.

    • Agree: Seamus Padraig
  3. I remember a very old, maybe around 1900, statement by a USA politician ‘we will want free trade when we can control it’.
    Do not ask me about the source, cannot remember.

  4. A very good article. But, as with many other things, (most) economists’ way of thinking is- if it is common sense, to hell with it. There is something Freudian about it all: they’ll invent all sorts of absurd excuses rather than face reality.

  5. I think it is spot on accurate that no country exercises more free trade policy to the ideal than the US among developed countries. And we do so to the detriment of citizens. It is not unwise to protect a share of employments for one’s citizens. Europeans are notorious for the practice.

    I think there additional measures in tending to our own economic health and while I admire Wall Street, they are not the only indicators of the country’s economic health.

    I think the big picture remains in our overall export health.

    appreciated this article.

    • Replies: @animalogic
  6. Joe Hide says:

    To Author,
    Good and reason based article.
    I would add that Americans buying of goods and services with corrupted debt dollars creates taxes on every world country and their citizens, not just on Americans. Because this debt is never repaid, but just added to, it is highly inflationary and decreases buying power, just like taxes decrease the amount of money a person has to buy things with.
    The military, economic, and political power of the United States backs this corrupted currency, whereas it was once backed by gold, silver, goods, services, etc. Any nation that threatens to not take dollars in exchange for say, oil, gets Libya-ed, or Iraq-ed, or Syria-ed, etc. Trumps predecessors created this monstrosity, and the uninformed and foolish blame him. He’s the first descent President we’ve had in decades, and is fighting an uphill battle against millions of entrenched, power crazed, pyschopaths. I’m totally with him so far.

  7. gdpbull says:

    We have been able to sustain our trade deficit and debt because we have the world’s reserve currency. We produce dollars, spend them, and the world has to take them. Our main export is dollars (and world-wide inflation).

    When China’s economy eclipses ours, their currency will replace the dollar as the world trade currency. That’s when the chickens will come home to roost. We will then be one big massive third world Greece.

    The natural thing to happen then will be for masses of immigrants to go to China, but unlike us, they will not allow the masses of third world (sh*thole) country immigrants to come.

    • Agree: The Anti-Gnostic
    • Replies: @unpc downunder
  8. @Mefobills

    I can’t find the cite, but I read in an early discussion of tariffs, c.1800, someone proposed that they were fine for revenue, and the proper level was up to the point where it started to restrict trade, and beyond would bring in less revenue. It impressed me when I read it as an early expression of (then famous) Laffer Curve.

    • Replies: @David
  9. Also among the most significant “systemic debt” problems is the systemic and systematic destruction of the working capital of small businesses and the entrepreneurial class by what the global financial system deceitfully refers to as “merchant discounts” or “merchant fees” on transactions that are charged to credit/charge-card accounts.

    The visa and mastercard banks alone skim the USD-equivalent of \$500 million a day off of their global throughput, including about \$50 million a day from the VAT’s and other sales taxes that are run through these accounts. Most banks actually make more money skimming the government sales taxes than they pay in income taxes.

    Banks do not make free loans and they do not advance credit for free. As a condition of access to visa or mastercard a merchant must agree to give a concealed price discount to card-users so that the nominal credit provider can collect a concealed credit charge at the end of the grace period (concealed-credit-charge-accrual-period) while leading the card user to believe that they have received cost-free credit. This isn’t bleeping rocket science!

    When cornered, the bankers answer the stark reality of it by the equally ludicrous claim that “It’s not a credit charge – it’s a discount for cash!”. You would need a small army of psychiatrists to even describe the scope of managed-mental-illness in that explanation. You go into a computer store that has for sale a laptop computer with a sticker price of \$1,000. The merchant takes mastercard, visa, and american express. His nominal discount rates are (visa) 2.5%, (mc) 3.5%, and (amex) 5%. So what is the price of the computer and what is the “discount for cash”?

    The question is non sequitur because the setup itself is a contradiction in terms. There is no definitive answer because the thing itself is a concealed credit charge of \$25, \$35, or \$50 depending on the card-issuer. And that is the respective amount the bankers metaphorically stuff into their pockets at the end of the grace period when it is physically received from the card-user and which they are required to, and do, record as interest/credit-charge revenue received from card-users and not merchants.

    By contract, the merchant has to sell the same computer to a cash/cheque/debit customer for the \$1,000 nominal sticker price. But to a visa-user for \$975, to a mastercard-user for \$965, and to an amex card-user for \$950, so that the card-issuers can take a concealed interest/credit-charge rake-off of \$25, \$35, or \$50 respectively, from the card-user’s payment at the end of the grace period or interest/credit charge-accrual period.

    These concealed credit charges are in addition to the \$250 million a day that the same banks assess against outstanding account balances.

    If a small business is operating on a 10% gross margin, then a 3% price reduction represents 30% of their gross operating margin. The US accounts for about 25% of the global total or about \$50 billion a year in higher prices to cover the banks’ collective rake-off. But it is also \$50 billion a year that is effectively and disproportionately shouldered by small business and the entrepreneurial class to significantly reduce their ability to compete with the corporate class that gets significantly lower rates.

    When all credit/charge-cards including retail store cards, gasoline company cards, etc. are factored in, the global grand total is approaching the USD-equivalent of \$1 billion a day, or over \$350 billion a year over and above the circa \$200 billion a year that the same issuers are receiving as interest called interest on outstanding balances.

    Now that is a systemic debt problem.

  10. CK says:

    Fiat money changed the old model of international trade.
    Prior to the destruction of real money, a nation could run a small BOP deficit for a short time; but then the creditors would no longer trade until the deficit was paid with real valuta. ( gold sometimes silver )
    It was called a balance of payments because eventually what you took in had to balance with what you put out.
    Real valuables are limited in quantity ( that is part of their charm and their value to people ).
    Hot air and paper promises from politicians are an unlimited and non-valuable resource.
    But so long as other nations accept the paper the USA current BOP can be considered as: They give us real stuff and we give them engraved paper.
    There is a downside to this, the engraved paper is legal tender in the USA, can be used to pay debts, purchase goods and services and real property. The USA has a govt. body that can invalidate a foreign countries purchase of American property at whim. As was done this week when the US govt. forbad Broadcom ( of Singapore ) from purchasing Qualcom ( of USA ).
    So for foreign governments the legal tender status of the \$ does not apply to them.
    In all of history one thing is certain, a cure is always found for a parasite.

    • Replies: @jacques sheete
  11. @gdpbull

    Disagree, all the Anglo countries have chronic trade deficits. America, like Australia and Canada, is a land-rich country that mainly sustains its trade deficits by selling real estate to foreigners. Britain limps along by selling off real estate in London. In the 1980s, it literally sold its family silver by exporting large amounts of antiques and painting to the US.

    Also I don’t get your point about inflation. Overall inflation rates are lower than they were in the 1970s (mainly thanks to industrial over production in Asia). Real estate prices are very high in desirable areas, but that’s probably more to do with the liberalisation of the financial sector than currency issues. Before, the neo-liberal reforms of the 1980s, real estate prices were kept low through government intervention and controls on foreign investment.

    • Replies: @EliteCommInc.
    , @gdpbull
  12. Nobody checks the inflation anymore. And I do understand why.
    By the time the data are collected and analyzed and results calculated.
    It is grossly out of date.

  13. My last hope is that eventually Dollar trees will start to sell meat and vegetables.

  14. @unpc downunder

    I like to consider the matter by examining the debt. I and several students spent a week exam ining US material assessts, they are vast. But hardly enough to cover the national debt upon which are constant deficit spending is the result of.

    If i was loan shark and came calling on the marker — the US could not cover it.

  15. David says:
    @Jeff Albertson

    Reagan once quoted an Arab guy from the 14th cent., “When the empire was young, taxes were low and revenue was high. When the empire was old, taxes were high and revenue was low.” I’ve always thought that was an early statement of the same thing.

    • Replies: @jacques sheete
  16. @David

    Sounds like Ibn Khaldun, the Arab historian who wrote the “Muqaddimah” which is fascinating. Michael Hudson quotes him as well.

  17. @CK

    Fiat money changed the old model of international trade.

    Made industrial grade warfare a reality too.

  18. gdpbull says:
    @unpc downunder

    The assets sales simply cannot account for the massive deficits year after year. Those deficits are covered by new dollars. The world is a big place even relative to the US, and that inflation is spread throughout the world. And that is why the world-wide inflation is low, including in the US. If the dollar were not the reserve currency, the inflation in the US would be considerably higher. It would not be circulated throughout the world.

    • Replies: @Disordered
  19. tjm says:

    Funny how many seem to forget Bannon worked for Goldman Sachs, and that it is far more likely Bannon was just acting, NOT LEADING SOME IDIOTIC “AMERICA FIRST” FACTION OF TRUMP”S CABINET.

    Either many reporters/writers are stupid, or just playing dumb, but Trump is a zionist whole, period.

    Bannon and the rest are just supporting actors.

    • Replies: @Disordered
  20. Dr. Doom says:

    Things are fine over at Gary Cohn’s house.
    The wine flows freely and the women are all smiles.
    If the economy isn’t that great what is the worst that could happen?
    An underground bunker?
    I’m sure Obergruper Steiner can save us all.

  21. @EliteCommInc.

    “and while I admire Wall Street, they are not the only indicators of the country’s economic health.”
    I admire the Mafia, the Mexican cartels etc, too…very clever, successful scumbags.

  22. (((Mercer’s))) not writing about South Africa right now. She’s been exposed. So, now she’s scribbling about “Globalist Gary” and libertarian fiscal nonsense.

  23. @Mefobills

    Agreed, though a couple added comments:

    1. Autarky can only be pursued so far – many countries for lack of geographical resources have to be more free-trader than others. Else join/invade another land. Which was the thing that joined Mussolini and Hitler, twisting around early Italian fascist intellectuals’ comments about autarky to support empire building.

    2. I don’t understand how Keynes could be seen as wanting to stimulate in times of depression, then recognizing that said stimuli only really did happen due to an exogenous war – and the most costly war up to date, by the way. Not to mention, the amount of money saved up in the roaring Twenties vanished in large amounts in the 29 crash; what did remain was the industrial capability, though this was also stifled by the misguided works programs (public spending stifles on average, but the particular type and way in which spending is done matters more). At any rate, FDR thought better of Mussolini-style haphazard debt-ridden corporatism, or so it seems…

  24. @tjm

    I think it hasn’t been stated enough that people did not vote for Trump, Bannon, et al for their frankly hypocritical personal stances, but because the populace let itself be cowed between two choices by the Duopoly and went to the polls thinking more about policy and gut feeling- and well, you could argue the least Zionist one won, don’t you think?

  25. @gdpbull

    While I agree that without the global dollar the US would be drowning worse than Greece, I would also argue that the Chinese cannot make the yuan global currency. At least, not without deflating so highly that the comparative price advantage of Chinese goods and services would fade away, as the just-became-richer Chinese capitalist-bureaucrats would have to likewise raise living standards for their employees (and/or face worker-peasant insurrection). There is a reason why the yuan is so low, it’s pretty much made for dumping products. When it appreciates, the monolithic Chinese trusts might have to separate and downsize in order to stay competitive, which would empty many a Chinese capitalist-bureaucrat pocket and many more of the employees’… and/or face worker-peasant insurrection.

    In fact, wouldn’t be surprised if then to avoid this scenario the Chinese committed the same leftwing American mistake of raising welfare and easing credit – later on, China can then commit the same rightwing mistake the US did of eventually looking for cheaper and more effective labor elsewhere, even if they do not bring it in… yet. True, maybe China can handle things better and avoid allowing immigration, while also having such a huge internal market for products/big corporations/effective employees that will keep prices low and wages for a while. But that can only last so long, specially if due to a strong yuan China starts handing out excessive credit both to its citizens (which can come as welfare that drives declines in productivity too) and outside its borders.

    Because, lest we forget, there are several currencies whose countries’ debt to China is expressed in dollars. If said debts were expressed in an appreciated yuan, China would be much harder pressed to come and collect, therefore potentially creating defaults in an overly indebted Third World and even Chinese intervention. After all, China is quite generous with its loans and projects in the Third World, therefore exposing itself to a lot. This is perhaps the biggest mistake they are making right now, IMHO, if only because of my experience in the Third World and seeing how most of those countries spend.

    In short, China will inherit the problems of empire, but on a grander scale that might make it succeed for longer, yet also maybe fall harder. Who knows, maybe robots will solve all the world’s problems (unless we don’t tax the luxury ones and the corporations that make them, that is)

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