February 03, 2012
It would have been worth including an explicit discussion of the trade deficit in the context of an assessment of employment prospects in manufacturing. At the moment, China and other developing countries are deliberately running large trade surpluses as a way to boost domestic demand. To do so, they are buying up huge amounts of dollars assets that essentially give them no real return. It is likely that at some point they will figure out how to generate demand domestically (e.g. hand out money to their citizens) and therefore will not have to pay people in the United States to buy their goods.
At that point we will either have to make our manufacturing goods ourselves or find a way to pay for the goods we import. The people who think that we will be able to pay for imported manufacturing goods with service exports have not examined the data. There is not a plausible story where increased U.S. exports of tourism (this is an export in national accounts), financial services or other components of the service sector will pay for our imports of manufactured goods.
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