We’ve been talking about elements of Economic Nationalism.
The basic character of the debates about Economic Nationalism, over the decades, has been pretty bad reasoning by the Economic Nationalists, who are nevertheless responding to real and important issues; and a tendency to recite “general economic principles” among the non-Nationalists, mostly in calculated ignorance of real-world situations.
Foreign trade is always a big component of these debates, so we have been addressing various issues related to foreign trade; not only in goods and services, but also, on the other side of the Balance of Payments, which must always balance (trade is always balanced), finance and investment.
For the sake of argument and convenience, economists typically talk about the “Rest of the World.” But, we do not actually interact with this “Rest of the World.” We only interact with individual entities. We must remind ourselves again that also we do not interact with “China” or “Mexico.” We only interact with individual entities characterized as “Chinese” or “Mexican,” which may include a subsidiary of Ford in Mexico, or Alibaba. Of course this “we” itself is not the “United States,” or “Americans,” but literally you or me, or some other entity like a corporation. The “United States” does not trade with “China,” but I might buy something on AliExpress this afternoon.
This interaction of individual entities is the reality of trade. Everything else is abstraction and aggregates.
To understand trade, we must thus begin with understanding the trade we are familiar with between individuals, or individual entities like a corporation or government entity. We say that we “trade” our labor Monday through Friday at a job for some money; and then we “trade” this money for things we buy from the “Rest of the World,” such as WalMart. We might spend more than we receive; in which case, this extra spending must be financed somehow, by either selling/liquidating assets (such as drawing down a checking account, which is a financial asset), or issuing financial assets to others (our financial liabilities), basically borrowing or issuing equity, in the case of a corporation. Or, we might spend less than we receive; in which case we accumulate financial assets, such as a larger checking account at our bank, which can then be later traded for other assets, such as stocks or bonds, or other forms of property. This is “saving” and “investing.”
This is not hard to understand, in a simplified abstraction with the “Rest of the World.” But even at this individual level, we have introduced a substantial simplification and abstraction. We do not trade with the “Rest of the World” any more than we trade with other imaginary aggregates like “China.” We only trade with individual entities, like WalMart.
We have simplified to assume that our income comes from one source, the “export” of our employment labor to our employer. This is simple, but it is not an abstraction, it is often the real-world state of affairs. But it is hard to imagine then spending that income, or “importing,” from one single entity, even a WalMart SuperCenter. We “import” from hundreds of individual entities, including Amazon and Rite-Aid, or Starbucks, or whatever.
It is not hard to imagine that our “trade” with the Rest of the World might be “balanced,” or that our income (from employment) is about the same as our expenditures (on goods and services). But it is impossible to imagine that our trade with any one entity is “balanced.” We “export” exclusively to our employer, but probably “import” nothing from them. We “import” (buy things) from WalMart, but “export” nothing to WalMart.
We could even create some statistical aggregates, such as “general merchandisers” including WalMart and Target, and “restaurants” including Starbucks and Chipotle, and “hospitality” including Marriott or Carnival Cruise Lines; this corresponding roughly to other statistical aggregates such as “China” and “Canada.” But here too there will be no “balanced trade,” even if our trade with the “Rest of the World” is indeed “balanced.”
Thus, it is difficult to say much of anything regarding the trade with the US and any individual “countries” (a statistical aggregate), or even a single economic entity, like Saudi Aramco. It is what it is for a variety of reasons that are hard to describe, but I think we all have some basic understanding of. We have a big “trade deficit” with WalMart because it happens to be close by and they have everyday low prices. Another person has a big “trade deficit” with Target, because there isn’t a WalMart handy.
But, this is not the same as “it doesn’t matter.” Whatever genuine issues may exist, will be somehow reflected in the Balance of Payments, since that is basically a record of economic transactions (“trade”). For example, all of your personal financial troubles — basically, your “trade” with the “Rest of the World” — will be reflected in your checking account, even though there is no problem with your checking account. Your checking account isn’t broken. But, you can refer to your checking account to describe your financial troubles. If the influence of trade with China, since its accession to the WTO in 2001, has been the decimation of the US manufacturing worker due to the influx of 1.2 billion cheap laborers into the world market, then that will be reflected somehow in the Balance of Payments. And if these Chinese also have had an astonishing savings rate in excess of 40%, that will also be reflected in the Balance of Payments. There is never a “trade imbalance,” because the Balance of Payments is always in balance. Like your checking account, it isn’t broken and doesn’t have to be fixed. But, cheap Chinese labor, and super-high savings rates, do leave their mark on the Balance of Payments.
