We have recently experience political theater from both the Republican and Democratic conventions. Both conventions provided a stage for their activists to create a vision of how they think our world should be. The issue of trade was common to both sides, though in different degrees.
The process of trade is simply the exchange of goods or services for other goods or services. There is nothing nefarious is this process. I drink coffee. I like coffee. I don’t grow coffee beans. In order to sip my favorite beverage, I must exchange something I do, make, have made or will make with the coffee bean grower for the coffee beans.
This is an important point if you are to understand trade deficits. Global trade is the exchange of good or services. The goods or services used for exchange are created today, were created yesterday or will be created in the future. Selling an airplane to a foreign country is an example of a good created today. Selling an office building is a good created yesterday, and debt is a good that will be created in the future. Trade deficits are comprised of goods created yesterday and goods that will be created tomorrow.
We have lower wealth because we own less and owe more. This trend in trade imbalance is not sustainable. It is constrained by the limit of assets that can be sold and the level of debt that can be serviced.
Immigrants are not the cause of our lower wealth, but they certainly are part of the solution. Wealth is created when we make products and services. To increase our standard of living, we have to begin making products and reduce our consumption of products made by other nations.
Trade is not a bad thing. Without trade I would not have the pleasure of my first cup of coffee in the morning. The problem is not trade, but excessive trade. When a nation trades to the extent that it decreases wealth for those at the lower economic rings of its people, then that trade becomes excessive because it is damaging to the people.
