The Trade Deficit

The US trade deficit hit a record high of $60bn in November. That means that the US imported $60bn more of goods than it exported that month.

This is a large, large number. How large? Think of it this way: $60bn is about what a medium-sized economy or two (like perhaps Mexico, or Australia plus New Zealand) produces in a month. Add up all of the things that such an economy makes – all of the cars, food, new construction, restaurant meals, haircuts, financial services, education, medical care, retail services, etc. that are produced by that country – and then give it ALL to the US so that the US can consume those things without having to produce them.

Or if you’d rather focus purely on physical goods (which is what the trade balance actually measures, anyway), then you have to add up all the production of physical goods by a collection of several medium-sized economies put together, like Australia, Canada, Mexico, Sweden, Belgium, and Spain. Take all of the goods produced by all of those countries, let their citizens consume none of it, and instead send it all to the US so the US can consume more than it produces.

What do those countries get in return? The US gives them lots of pieces of paper that say that they own something in the US, or that the US will pay them back for all of those imported goods some time in the future.

But here’s the most interesting part of all of this, to me: apparently everyone on both sides of this transaction thinks that it’s a good deal.