This Scares Me: The U.S. Balance of Trade

[Divinus Arma]

Every country has something called a "Balance of Payments". It is essentially a summary of all trade comin into and going out of a country. It includes goods, services, securities, assets purchased, foreign direct investment, etc.

I am currently doing a research paper on the U.S. Balance of Payments from 1985-2005.

Take a look at this;


This graph summarized three components of the Blance of Payments: (1) The current account, which measures goods and services imported/exported, (2) The Capital/Financial Account, which measures financial trade and diresct investment abroad or within the U.S., and (3), the U.S. Basic Balance, which essentially describes the international economic activity of a nation.

Anyway, here is what matters, and what we are starting to hear more of.

Look at the current account. It was relatively stable until 1997, staying in deficit always less than $200 Billion. In the last 8 years, it plummeted to more than $800 billion! That is a radical shift in trade in a very short amount of time.

Also, look at the capital/financial account. It has grown at the same rate (which is normal:the current account and capital/financial balance have a natural inverse relationship), to $800 billion. Why is this bad? Because all of that money is from foregin direct investment into the U.S.! It means that more and more international businesses are building subsidiaries in the U.S. and sending their cash back home.

Basically, these two figures tell us: The United States is rapidly losing its competitive edge as a global exporter, and our market economy enables foreign companies to build plants here and export out or sell from within.

Our trade base is taking the biggest crap in American history!

[Papewaio]

The silver lining is that all this foreign investment means there is a vested interest (forgive the pun) in keeping the US economy pumping along.

Also by importing so much oil at such a high price it is not helping things. I wonder how much of that trade balance would disappear by putting in alternative energy and nuclear power stations. Have more hybrid cars that can hook up to the power grid, a larger more efficient public transport network and less toys.

[Peasant Phill]

What is, in your opinion (or that of Greenspan or of someone else with some authority), the reason for this and what are the possible consequences if this situation continues?

[Major Robert Dump]

where, in relation to all of this, would products manufactured by a US company at a foreign plant to be shipped back to the US fit into all of this? Do shoes made by Nike in India to be sold in the US count as exporting or importing? And what about when a guy in India processes my insurance claim from Geico? Seriously, I'm curious how this figures in.

We are a consumer nation who demands low prices and convenience for almost everything,
Foreign investors want to make sales, so they come here and fill the vacuum, and there is a vacuum.
They also know we have a corporate tax code that can be worked like a cheap hooker, and a business bankruptcy system that holds no one acountable.

What do we have to export that is manufactured here that people would actually buy except basic foodstuffs, items of luxury and products that sell soley because of name recognition? I suppose we could export more "services", but we are at a disadvantage as a consumer nation because the bulk of services we use are low end services that can be done cheaper by the people where we are exporting to. That leaves high end services to be exported.

Of course theres also the international laws that tax the hell out of exported products to countries where they don't want us to compete, while their products being shipped over here are barely taxed.

I also think employee/employer loyalty, the rich/poor income gap and overall apathy and greed among certain elements of society make for a market thats easy to make some quick bucks, but offers lower qaulity products that you can't export because they are crap.

[Ser Clegane]

Do shoes made by Nike in India to be sold in the US count as exporting or importing?

I'm pretty sure that counts as import into the US (why shouldn't it? - where the headquarters of a company are located should be pretty irrelevant for this kind of statistic)

[drone]

On the flip side of that, do foriegn cars made here in the States count as imports? Say, BMWs built in South Carolina?

[Ser Clegane]

On the flip side of that, do foriegn cars made here in the States count as imports? Say, BMWs built in South Carolina?

No - the cars are made domestically (OTOH the investment by BMW to build the plant would fall under "foreign direct investment" that is reflected in the "Capital/Financial Account Balance" on DA's chart)