America's Trade Problem Has Nothing To Do With China
I’m an Importer/Exporter.
Most of us are. We consume things, but we also put productivity back out into the world. We read books, listen to podcasts, watch movies. We also consume food, clothing, energy, and packaged goods. We export things in the form of our professions, by practicing medicine, or law, or doing analysis.
Countries are the same. We produce goods and services and export them to other countries who desire them. In return we import the goods and services we can’t produce easily ourselves. Globalization has made this much easier for everyone.
America just posted the largest trade imbalance out of every country in the world in 2021. We import more than we export to the tune of $1.2 Trillion.
China, by comparison, has the largest trade imbalance in the other direction. They export $676 Billion more than they import.
Much ado is made about these figures. They make nice political talking points when trying to convince the electorate that we have shipped all of our manufacturing jobs overseas, and thusly became highly dependent on cheaper labor. That’s directionally correct, but doesn’t tell the whole story. First of all, nobody wants those jobs. Second of all, these figures are measured in USD and don’t capture intangibles like goodwill or culture.
America’s Media and Entertainment industry is almost $1T, roughly 5x larger than China’s. There is a reason there is a McDonald’s in almost every country in the world. Western culture has made it’s way into every nook and cranny imaginable. That type of influence doesn’t show up in the trade imbalances.
Does the trade deficit matter? Yes and no. It doesn’t capture everything, but it is instructive as it contains insight on underlying factors. As Covid exposed the fallibility of global supply chains, countries (and companies) are becoming more willing to bear additional costs to retain some resiliency. I think we should extend this mindset down to the individual.
America’s trade imbalance as a country is due to it’s trade imbalance of it’s companies, which is due to it’s trade imbalance of it’s individuals.
We have gotten used to cheap products. Nikes for $100, and iPhones for $1000. Of course we could manufacture these items in America and probably sell them for the same price, but cost increases typically aren’t born by the companies, they are born by the consumers. Nike and Apple have employees to pay, and shareholders to keep happy. In order to achieve resilience, consumers will pay the premium.
Let’s talk about these consumers. We are them. We are the one ingesting the McDonalds, scrolling the phones, watching the movies, buying the clothes in an ever-changing cycle of fashion, culture, media, and diet.
America has a trade deficit problem because we inherently love to import, and we fucking hate to export. Importing is so much more fun! It’s spending our money, and time, and energy, and attention. It’s spending. Exporting is hard! It’s producing, and planning, and laboring, and focusing. It’s work. We have no interest in bringing those manufacturing jobs back, and for good reason. It’s 2023, all of this stuff should be automated. Robots in factories, AI in robots, humans just monitoring and managing. America is primed for this world, but it’s not quite here yet. The ironic part is, getting there requires additional work. The type that only a few will be able to perform.
We have inflation, we have a recession, we have an increase in the cost of capital, and we have a decrease in consumption. We have to buy less, which means that companies are going to make less, which means that the employees at those companies are going to buy less from our companies. Inflation is a vicious psychological cycle.
All of this plays against the backdrop of a massive debt to GDP ratio, a consumer credit industry maxed to the brim, and an education system that I don’t think anyone thinks is very good. We’ve leaned so far into the trade deficit it’s hard to see the way out.
We complain that a small portion of the population controls all of the wealth, but it is a small portion of the population that produces the wealth that enables the trade deficit.
That’s why I am saying that the American trade deficit has nothing to do with China. It is our own psychological problem. It is a problem of productivity. It is a problem of overconsumption. It is a problem of motivation. Being the wealthiest country in the world comes with it’s privileges, which enables us to live this lifestyle, but it is not without ramifications. How do we become more resilient as a group without becoming more productive as individuals? Just like the corporation onshoring supply chains, resiliency is expensive. For the individual, resiliency means working harder.
Each of us need to look at our individual trade deficits. Do we consume more than we produce? America is the biggest enabler. It enables people to do amazing things that no one ever thought possible. It also enables people to produce very little while consuming a lot. The former enables the latter.
Will the American trade deficit ever narrow, or will it continuously widen? In Middlemen America, I wrote about how Tech enables the layer of fat in organizations, and when it contracts, that fat goes away or gets redistributed. That fat is the trade deficit. Extractive Middlemen not adding value or producing anything, but getting paid and consuming. We are in a period of contraction, but eventually some new tool will get invented that creates massive value for millions of people, is too complicated for most to understand, and (beyond the actual value of the tool) a whole economy gets built around supporting it (Middlemen and all). This continues the cycle of enablement, and the trade deficit on a personal and national level. Counterintuitively, it also preserves the USD as the global reserve currency. None of the debt/credit/currency stuff matters as long as we keep innovating.
So does a trade deficit matter? Like everything, it is a balance. We should all strive to be the person creating the value that unlocks the ability for others to slack off. But do we need to lament the others for not producing? Many people will try and try and try and fail to ever produce anything of value. There is nobility in that. But America also has a culture of opportunists who are ingenious in their ability to appear productive, while actually doing nothing at all. It is a learned skill, honed over many years of corporate jargoning, staff meeting etiquette, office politics, and bureaucratic processes. Enron incarnate. The problem is, we have incentivized this behavior over trying. To try and fail many times often nets out to less acquired value than slowly compounding status up the corporate ladder. The safe route is still to overpay for an education, which gets you a job at big company you are unqualified for, and develop relationships to insulate yourself from the evil value producers trying to make the company more money (which involves removing you). Played out over millions of people each year, the result is an overconsuming, underproducing population that materializes into a personal and national trade deficit.
We need to develop more ways to change this incentive structure over time.