(03-13-2018, 01:03 AM)wrong_box Wrote:

(03-12-2018, 03:12 PM)HURRICANE!!! Wrote:

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Based on your scenario above, the US consumer gets screwed.  If we're simply raising the price of imported goods via tariffs so they are higher than our domestic cost to produce similar goods, than we're simply raising the price to the US consumer.

and just how might that be? If it costs about the same to make and sell US steel than it does to buy imported steel, most american companies would buy American steel...If american steel companies thought for one second that this was bad, they wouldn't bother to restart their foundries and start producing more steel...If you are referring to the consumer getting screwed because the price of imported steel would now be on par with the price of US steel,I don't see that...I see a trade imbalance that has gone on for years, which has been created by cheaper products made by incredibly low wage earners including children making a couple bucks a day and also a lesser quality (but mostly adequate) product...If contractors can buy a better product for a comparable price, they will and then more American steel will be sold,which adds jobs and revenue which is never a bad thing...You have a better solution to equalizing the trade imbalance?

Yes, I have a better solution to equalizing the trade imbalance.  First, you have to start with the basics.  Why do we have a trade imbalance?  The reason we have a trade imbalance is because we have a huge federal budget deficit.  That may be a bit much to wrap our heads around, so let me explain. 

Normally, a trade imbalance would result in a currency valuation adjustment.   A trading partner sells us more than we sell them, so they are left holding dollars.  Normally, the dollars would be exchanged for their own currency, which puts more dollars into the currency exchange markets, and the supply-demand ratio (selling dollars for Japanese yen, for example) would cause the value of the dollar to go down, which would make our products cheaper on the world markets, and therefore we would sell more products overseas, and the trade imbalance would correct itself. 

But what is happening now is that we give our trading partners the ability to maintain the trade imbalance by selling them US government bonds, so they don't have to put the dollars they hold back into the world currency markets.  (They can buy US government bonds instead.)  This maintains the value of the dollar, and that makes imports cheap for US consumers, and that maintains the trade imbalance.  It also finances our federal debt.  This is why people keep talking about how we're borrowing money from China to finance our government.   In effect, we are.  But by selling US government debt to China (and others) the dollars they hold don't have to go on the world currency exchange, so the dollar stays strong and that makes imports to the US cheap.  

Remember, if more dollars are sold for Chinese renminbi, the value of the dollar should go down and the value of the renminbi should go up.  That's the way markets work. 

So the trade imbalance and the US government deficits are working hand in hand.  If our overseas trading partners continue to buy US government bonds instead of exchanging dollars on the currency exchange markets, the dollar stays strong and that causes imports to be cheap for US consumers, and the trade imbalance remains.   We are giving the Chinese the tools for manipulating the currency markets.  We love it when they buy our bonds and finance our deficits.   But them buying our bonds is what causes the dollar to stay strong and Chinese imports to remain cheap for us.  Because by buying US government bonds, they don't have to swap the excess dollars they hold for their own currency. 



So the way to fix the trade imbalance is to fix the deficit.  If we fix the deficit, we can stop selling US government bonds to our overseas trading partners.  Then they will have to exchange the dollars they are holding (from selling us stuff) for their own currency, the value of the dollar will decline naturally, and it'll be easier to export stuff, and imports will become more expensive. 

The trade imbalance is financing our deficits.   And the deficits are allowing our trading partners to manipulate their currencies.   That's the bottom line.   To fix the trade imbalance, fix the deficits.   We can yell at the Chinese all we want about currency manipulation, and they will respond, "We are manipulating our currency by buying your government debt.  Do you really want us to stop doing that?"  

So, that was a lot to read, and here's the executive summary: Strong dollar means cheap imports.  Overseas trading partners manipulate the currency by buying US government debt instead of exchanging dollars on the world currency exchange.  If we stop selling them US government debt, they can no longer do this.  But we need to finance our deficits, so we keep selling them US government debt.  We're doing this to ourselves!  We are causing the strong dollar, therefore, we are causing the trade deficit. Stop the deficits, and we can stop having to sell them our debt.  Then the dollar would normalize, and the trade deficit would disappear.

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