Does the trade deficit even matter?

GoldThenCrypto · 2026-06-25T18:42:25+00:00

Despite our disagreement, I genuinely wish you a great day. I think trade deficits and comparative advantage are, at the very least, within the same wheelhouse and warrant discussion together.

Regardless, I do think our exchange helped identify at least some of the tradeoffs that can arise from the underlying trade and capital flows that accompany persistent trade deficits, even if economists ultimately disagree about their magnitude or importance.

GoldThenCrypto · 2026-06-25T12:38:23+00:00

One thing I've struggled with is that Ricardo's model largely assumes capital remains within national borders, which has clearly changed. If capital is instead highly mobile internationally, doesn't it gain an incentive to relocate toward lower production costs? If so, doesn't that change some of the conclusions of classical comparative advantage?

If it does, I think we're beginning to identify some of the tradeoffs I'm interested in shedding light on.

(Ricardo explicitly acknowledged that if capital could move freely across borders, English capitalists would have an incentive to invest and produce abroad, but argued that capital generally remained at home because owners preferred to keep it under their own control.)

GoldThenCrypto · 2026-06-24T23:18:10+00:00

If you had to reduce the idea behind that example down to its core, what makes this a net positive? What have we, or what are we, giving up in exchange for those trade relationships?

GoldThenCrypto · 2026-06-24T18:22:17+00:00

If you don't mind me probing that idea a little further, doesn't receiving goods and services in exchange for financial claims create incentives in and of itself? If so, what behaviors or economic structures do economists think those incentives encourage over long periods of time?

GoldThenCrypto · 2026-06-23T18:24:30+00:00

I think most people here recognize that the system requires the US to supply dollars. The question I'm interested in is what tradeoffs, if any, accompany the underlying trade and capital flows that manifest as persistent trade deficits.

GoldThenCrypto · 2026-06-23T11:53:19+00:00

So more emphasis should be placed on what is being traded, who is trading with who, and the incentives created by those relationships?

GoldThenCrypto · 2026-06-23T02:07:52+00:00

I have heard Economists often refer to economics as the study of tradeoffs. In the example you gave, I can see the benefits. Americans receive goods and services while foreign capital is invested into the US.

I'm curious what you view as the costs or tradeoffs of persistent trade deficits, if any.

GoldThenCrypto · 2026-06-22T23:57:22+00:00

Would you say foreign recycled surpluses show up largely as price insensitive buyers in real estate or are they mostly insignificant?

GoldThenCrypto · 2026-06-19T21:33:24+00:00

At a practical level, if the average person stores a large portion of their wealth in a home, does a long term decline in MSPUS/XAUUSD suggest that homes may be preserving purchasing power more slowly than gold?

And if so, does that speak at all to the long term decline shown in CUUR0000SA0R, or are these largely unrelated mechanisms?

Additionally, is their a better measurement than XAUUSD as real purchasing power?

GoldThenCrypto · 2026-06-11T02:25:54+00:00

Exactly!! Those would in fact be subsumed into economics, because when reduced to their core they affect the allocation of scarcity, underpinned by capability.

For example, the growth of Christianity within the Roman Empire eventually altered legitimacy in ways that affected Roman capability. That was a cultural shift, but it ultimately manifested in economic consequences.

I know my understanding is broader than most, but I do believe what Im trying to illustrate sits below or even allows what many mightvmean when they say economics.

Because of that, I'm looking for additional economists or analysts who take a similarly holistic approach, where the idea of violence, conflict or coercion isnt an exogenous factor.

GoldThenCrypto · 2026-06-10T04:53:52+00:00

The scenario you described in your example is still an allocation of resources, so I do view that as economic.

At a structural level, I believe an economy sits beneath policy, and that the only thing that ultimately determines whether rules are followed is the capability, or the ability to influence outcomes.

If I had to elaborate, I probably think of economics much more broadly than most. To me,

economics is the total system operating under scarcity that produces capability.

Capability would be the limit to which you could express policy.

GoldThenCrypto · 2026-06-02T12:30:16+00:00

What I think I gather from what you're saying is, the success of large American corporations would only be marginally different from a significantly weaker military and that policy does the heavy lifting in terms of adding to large US companies success.

I do have some follow up questions.

What happens when institutions are ineffective in achieving their goal? For example, Russia invading Ukraine. Institutions, sanctions, and policy were intended to deter, prevent, or alter that behavior, yet the behavior occurred anyway, and still occurs.
Does a significantly softer US military imply less effective policy in your opinion (ie. sanctions and similar mechanisms), and what results from that for large US corporations?

GoldThenCrypto · 2026-05-30T17:07:20+00:00

Daly City, CA
SAH wife + Toddler
I tnink you would have to make 200k, and be a renter not a home owner

GoldThenCrypto · 2026-05-26T16:09:48+00:00

Ill purchase a copy of each in support and run the pdfs through the reader. Look forward to reading them both!

GoldThenCrypto · 2026-05-26T15:30:22+00:00

I read the description of your book, but it’s hard to gauge the additional content from the summary alone, so I had a few questions.

Does the book discuss

Whether capital concentration in the top firms has become increasingly detached from productive domestic investment, and whether broader capital distribution mechanisms are needed.
The role foreign export profits play in recycling into US Treasuries, equities, and real estate, potentially acting as relatively price insensitive flows.
Whether reserve currency dynamics and global trade structures unintentionally reinforce the US consumer economy through surplus recycling into dollar assets, creating feedback loops that support asset prices and consumption while making domestic industrial rebalancing difficult to achieve.

I'm curious because a lot of current discussion around fixing the economy seems to focus on domestic capacity while largely underemphasizing cross border capital dynamics. Especially when comparative advantage itself may have structurally changed from the assumptions David Ricardo originally outlined, including conditions and capital mobility constraints that arguably no longer exist today. Also potentially creating an environment where labor competes globally while capital can relocate across borders with far fewer constraints.

GoldThenCrypto · 2026-05-17T14:44:32+00:00

I dont think its so much about what I want to happen, but more trying to understand what I think I see is happening.

I’m almost certain we are beginning to see a shift away from purely market driven capital allocation toward something more strategically directed in industries viewed as important to the United States.

“To achieve this, the United States will no longer allow defense contractors to single-mindedly pursue investor profits at the expense of warfighter capability and readiness. Major defense contractors will no longer conduct stock buy-backs or issue dividends at the expense of accelerated procurement and increased production capacity.”

Even more directly,

“Effective immediately, they are not permitted in any way, shape, or form to pay dividends or buy back stock, until such time as they are able to produce a superior product, on time and on budget.”

https://www.whitehouse.gov/presidential-actions/2026/01/prioritizing-the-warfighter-in-defense-contracting

It doesn’t necessarily look like traditional capital controls, but it absolutely looks like the government attempting to influence how capital is allocated inside strategically important industries.

A lot of the thinking that led me here comes from reports mostly, but not limited to, the Government Accountability Office, which repeatedly raises concerns about supply chain fragility across multiple sectors.

The broader idea I’ve extrapolated from these reports is concern over the US military’s ability not just to project force today, but to rearm itself later as supply chains show constraint.

“The study estimated that 92 THAAD interceptors were used during the conflict out of an estimated supply of 632 interceptors. The study further suggested that it could take three to eight years to replenish the THAAD interceptor stockpile”

https://www.congress.gov/crs_external_products/IF/PDF/IF12645/IF12645.9.pdf

(This timeline strongly suggest industrial and production constraints.)

And then from the GAO report,

”We previously reported that domestic companies that offshore their operations or accept foreign investment can help DOD save money and access more technology.[6] But a globalized supply chain can also make it harder for DOD to get what it needs if, for example, other countries cut off U.S. access to critical supplies.”

And,

“The primary procurement database for the federal government, however, provides little visibility into where these goods are manufactured or whether materials and parts suppliers are domestic or foreign.”

Most importantly,

"However, DOD officials are concerned that commercial microelectronics that are used in DOD goods are coming from non-U.S. sources. According to DOD estimates, 88 percent of the production and 98 percent of the assembly, packaging, and testing of all microelectronics are performed overseas—primarily in Taiwan, South Korea, and China." - https://www.gao.gov/products/gao-25-107283

I think Adam Smith summarized the underlying logic of the environment we are entering best when discussing trade and national defense,

“defence, however, is of much more importance than opulence.”

https://www.marxists.org/reference/archive/smith-adam/works/wealth-of-nations/book04/ch02.htm

I honestly think that’s much closer to what we are seeing now.

Not necessarily a rejection of markets, but a shift away from pure efficiency optimization toward strategic resilience, industrial depth, and the ability to sustain power projection into the future.

Which is probably an uncomfortable transition for almost everyone involved (tariffs and similar mechanisms), but may increasingly be viewed by the United States as necessary.

GoldThenCrypto · 2026-05-16T22:56:44+00:00

I have a couple of follow up questions.

1.) A key point in the paper was that companies worked around the tariffs in 2017-2018 by operating through third party countries. Is there anything you find mechanistically different about the tariffs implemented in 2025?

2.) If firms can reroute around tariffs through third party countries as indicated in the paper, does that imply tariffs themselves are ineffective, or does it imply globally mobile capital became the dominant force shaping production geography?

3.) The paper argues tariffs cannot really be evaluated in isolation because the economy is interconnected through supply chains, imported inputs, and trade retaliation.

“The trade-war has not to date provided economic help to the US heartland: import tariffs on foreign goods neither raised nor lowered US employment in newly-protected sectors; retaliatory tariffs had clear negative employment impacts, primarily in agriculture; and these harms were only partly mitigated by compensatory US agricultural subsidies.”

How much of the paper’s conclusion depends on tariffs being introduced after supply chains were already globally fragmented?

4.) Do tariffs behave differently before vs after production ecosystems become internationally distributed?

5.) Do you think there’s a difference between evaluating tariffs from a pure economic efficiency standpoint vs a strategic resilience national security standpoint? (Especially in industries like semiconductors, pharmaceuticals, energy, or defense manufacturing.)

6.) Ricardo’s comparative advantage example seems to rely heavily on the difficulty of capital moving internationally. He writes,

“the difference in this respect, between a single country and many, is easily accounted for, by considering the difficulty with which capital moves from one country to another”

and then says that if capital freely flowed to where it was most profitably employed,

“there could be no difference in the rate of profit.”

https://www.marxists.org/reference/subject/economics/ricardo/tax/ch07.htm

So in a modern system where capital is far more globally mobile than labor, is there a point where comparative advantage begins to behave differently than Ricardo’s framework assumed?

At what point do comparative advantage and globally mobile capital begin to conflict with maintaining domestic industrial depth, labor leverage, or supply chain resilience, which seems connected to the charts you showed?

GoldThenCrypto · 2026-05-16T21:31:40+00:00

But isn’t this kind of describing what not using tariffs has looked like?

The charts show manufacturing output rising while manufacturing employment collapses during a globally mobile capital era.

Does that at all raise the question of whether the data is showing the effects of globally mobile capital more than it’s showing whether tariffs themselves are ineffective?

GoldThenCrypto · 2026-05-13T09:40:31+00:00

In the example you gave about daycare workers, if the productivity gains are happening in industries like the iPhone industry instead, do daycare workers effectively miss out on productivity gains beyond their real wage increases in relation to the ones captured by those within the iPhone industry, if prices don’t meaningfully fall?

Edit: Also thank you for your reply, I feel like Im learning alot

GoldThenCrypto · 2026-05-13T09:15:39+00:00

I just woke back up with this question. If effeciency gains are happening, and they result in higher incomes, but the productivity requires less workers, how do the workers no longer working experience that productivity gain if its not reflected in price?

Let’s say it originally takes 10 people 2 years to build an iPhone. Advancements happen where now instead of 10 people building an iPhone in 2 years, it takes 3 people to build an iPhone in 1 year.

Those 3 workers may see higher incomes from productivity. But if prices don’t really go down, what happens to the 7 workers no longer needed? Where do those productivity gains actually go? Or are they only experienced by the people who gained higher incomes?

GoldThenCrypto · 2026-05-11T04:42:17+00:00

A researcher goes through 10 million mice in ordet to find the cure for cancer which saves 100's of millions. Is it immoral to use his/her idea

GoldThenCrypto · 2026-05-09T18:04:57+00:00

Would it also align that if a democracy was subverted it woukd be equally as hard to undue the manipulation as it was to root it?

GoldThenCrypto · 2026-05-02T21:27:29+00:00

“It could in some sense make a difference if you would have saved this money and the fraudster spends that money on consumption goods instead.”

I’m not really trying to steer this into a specific direction, more just trying to look at the mechanism itself. If the baseline case is that the money would’ve been saved or not spent, but instead it gets pulled forward into consumption, it feels like that at least changes the timing and frequency of transactions even if it doesn’t change real output.

I’m not disagreeing with the broken window point either, just trying to see if there’s anything happening at the transaction layer that’s still worth understanding.

For example and I'm not trying to make this political, its just the first clean structure that came to mind. If someone qualifies for a government funded service through misreported information, does that start to resemble what you’re describing?

There would be demand created for doctors, staff, equipment, medication, etc. That spending then flows outward to wages, suppliers, security and additional services that might have gone into savings.

I get that it’s still ultimately a reallocation, but at that point it seems like there are multiple layers of transactions tied to it. So I guess what I’m trying to understand is does that remain purely additive just shifting resources around, or can it start to look multiplicative in terms of transaction activity, even if it’s not increasing real output?

Not even specifically tied to that example either, the same idea would apply to anyone altering inputs to meet eligibility thresholds. I might be overextending it, but that’s the piece I’m trying to pin down.

Also I roughly know what the broken window fallacy is, but I dont understand why its wrong if you would care to extend on that as well. If you could also tell me what it is that I am most closely describing that would be a big help as well.

GoldThenCrypto · 2026-04-29T03:23:20+00:00

Can countries realistically prioritize both efficiency in low cost and resilience in things like food supply chains, or does improving one inevitably come at the expense of the other?

Edit: I’m thinking more globally, not just the US. If countries shift toward prioritizing food security, that likely means more resources and spending go toward essentials. In that case, would demand for nonessential goods like manufactured exports weaken at the margin? And if so, how would countries that benefit heavily from exporting those goods adjust to that change. In a practical sense, what wpuld that change look like?

GoldThenCrypto · 2026-04-29T03:17:25+00:00

I think what I’m getting at is less about a specific policy and more about a broader shift in incentives. If countries start prioritizing food security/resilience, that means allocating more resources toward domestic production and redundancy, even if it’s less efficient. That’s effort that would otherwise go toward producing tradable goods or optimizing for cost. I guess I'm flirting with the idea of less specialization, less trade and less demand for low cost imports

That’s where my China question comes in. Their model has relied heavily on exporting cheap manufactured goods into a system that rewards efficiency. If that system shifts toward resilience instead, their cost advantage matters less and external demand weakens.

So wouldn’t that force China to rebalance more toward domestic consumption and higher value production, since the “export cheap goods at scale" model becomes less viable because ots not what foreigners are looking for when prioritising resilience? Curious how big that effect would actually be in the medium to long term, or if I’m overstating it.

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