Max H's Shortform

Max H

This is a special post for quick takes by Max H. Only they can create top-level comments. Comments here also appear on the Quick Takes page and All Posts page.

Maybe the recent tariff blowup is actually just a misunderstanding due to bad terminology, and all we need to do is popularize some better terms or definitions. We're pretty good at that around here, right?

Here's my proposal: flip the definitions of "trade surplus" and "trade deficit." This might cause a bit of confusion at first, and a lot of existing textbooks will need updating, but I believe these new definitions capture economic reality more accurately, and will promote clearer thinking and maybe even better policy from certain influential decision-makers, once widely adopted.

New definitions:

Trade surplus: Country A has a bilateral "trade surplus" with Country B if Country A imports more tangible goods (cars, steel, electronics, etc.) from Country B than it exports back. In other words, Country A ends up with more real, physical items. Country B, meanwhile, ends up with more than it started with of something much less important: fiat currency (flimsy paper money) or 1s and 0s in a digital ledger (probably not even on a blockchain!).
If you extrapolate this indefinitely in a vacuum, Country A eventually accumulates all of Country B's tangible goods, while Country B is left with a big pile of paper. Sounds like a pretty sweet deal for Country A if you ask me.
It's OK if not everyone follows this explanation or believes it - they can tell it's the good one because it has "surplus" in the name. Surely everyone wants a surplus.
Trade deficit: Conversely, Country A has a "trade deficit" if it exports more tangible resources than it imports, and thus ends up with less goods on net. In return, it only receives worthless fiat currency from some country trying to hoard actual stuff for their own people. Terrible deal!
Again, if you don't totally follow, that's OK, just pay attention to the word "deficit". Everyone knows that deficits are bad and should be avoided.

Under the new definitions, it becomes clear that merely returning to the previous status quo of a few days ago, where the US only "wins" the trade war by several hundred billion dollars, is insufficient for the truly ambitious statesman. Instead, the US government should aggressively mint more fiat currency in order to purchase foreign goods, magnifying our trade surplus and ensuring that in the long run the United States becomes the owner of all tangible global wealth.

Addressing second order concerns: if we're worried about a collapse in our ability to manufacture key strategic goods at home during a crisis, we can set aside part of the resulting increased surplus to subsidize domestic production in those areas. Some of the extra goods we're suddenly importing will probably be pretty useful in getting some new factories of our own off the ground. (But of course we shouldn't turn around and export any of that domestic production to other countries! That would only deplete our trade surplus.)

The strategy you describe, exporting paper currency in exchange for tangible goods is unstable. It is only viable if other countries are willing to accept your currency for goods. This cannot last forever since a Trade Surplus by your definition scams other countries, with real wealth exchanged for worthless paper. If Country A openly enacted this strategy Countries B, C, D, etcetera would realize that Country A's currency can no longer be used to buy valuable goods and services from Country A. Countries B, C, D, etcetera would reroute trade amongst themse... (read more)

2FlorianH2y

Essentially you seem to want more of the same of what we had for the past decades: more cheap goods and loss of production know-how and all that goes along with it. This feels a bit funny as (i) just in the recent years many economists, after having been dead-sure that old pattern would only mean great benefits, may not quite be so cool overall (covid exposing risky dependencies, geopolitical power loss, jobs...), and (ii) your strongman in power shows to what it leads if we only think of 'surplus' (even your definition) instead of things people actually care about more (equality, jobs, social security..). You'd still be partly right if the world was so simple that handing the trade partners your dollars would just mean we reprint more of it. But instead, handing them your dollars gives them global power; leverage over all the remaining countries in the world, as they have now the capability to produce everything cheaply for any other country globally, plus your dollars to spend on whatever they like in the global marketplace for products and influence over anyone. In reality, your imagined free lunch isn't quite so free.

Max H's Shortform

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Max H's Shortform

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