- Cafe Hayek - https://cafehayek.com -

Sudha Shenoy on the Trade Deficit

Tweet [1]

Responding to this article [2] in The Guardian, Sudha Shenoy [3] has a wonderfully clarifying post [4], at Liberty & Power, on the U.S. current-account deficit.

Here’s an especially important passage:

As the Guardian article sees it, Americans have been recklessly
borrowing against their assets to buy consumer goods; hence the trade
deficit & capital inflow: ‘Consumers have been using their homes
like ATMs – borrowing against rising prices – but this cannot go on
forever. The US economy needs quite a prolonged period in which
consumer spending grows more slowly than the economy: that is the only
way that the trade deficit is going to be reduced.’

The facts: (a) The bulk of (private) US imports have always been production goods, not consumer goods

(b) the proportion of consumption in imports has been falling, i.e., the proportion of industrial inputs has been rising

(c) there has been no change in the overall composition of (private) imports for the last fifty years & more.

US imports (& exports) are made up of all sorts & types of
industrial goods; they run the entire gamut of industrial production.
In the classifications, industrial inputs can be identified fairly
clearly, but manufactured consumer goods are not always as clear. The identifiable groups of such consumer goods came to
somewhat over 23% of all imports in 2004. This proportion has in fact
been falling: it stood at 31% in 1951-55 & 1965, & at 26% in
1979. Correspondingly, production goods have made up a rising
proportion of imports.

(HT Bob Higgs.)

Share [5] Tweet [6] Share [7] Email [8] Print [9]

Comments