[quote=patientrenter]All right, I’ll give it one more try.
Why does free trade beyond our own country’s borders lead to “high unemployment and mind numbing deficits? Less money for schools, hospitals, roads and social services?”?
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Because its not “fair” trade and has led to a huge trade deficit. Those trade deficits lead to our national debt. Making stuff creates stable jobs. Is that simple enough?
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Simply, money spent on Middle East oil, Chinese televisions and coffee markers, Japanese and Korean cars can’t be spent on U.S. made goods and services, unless offset by a comparable amount of exports. Since U.S. imports exceed exports by almost five percent of GDP, the trade deficit creates an enormous drag on demand for U.S.-made goods and services. Along with the credit crisis and resulting slowdown in new housing and commercial construction, the banking crisis and trade deficit could push unemployment above 10 percent.
Were the trade deficit with China and other Asian exporters reduced by $200 billion, GDP would rise by at least $400 billion and about 2 million manufacturing jobs could be restored. http://www.globalpolitician.com/25315-economics
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This guy explains the deficit well:
Why Is the Trade Deficit Important?
Name: Amy Shacklett
City & State: Knoxville, Tenn.
Question: Please explain the trade deficit. What is it? Why is it important? Is it an indicator like taking someone’s temperature or is it a debt that has to be paid?
Does it relate directly to our national debt? For example, we have a trade deficit with China. Also, we borrow money from China by selling T-Bills. The T-Bill transactions contribute to our national deficit. How does the trade deficit fit into the picture?
Answer: Paul Solman: Trading with those outside the United States means selling to them and buying from them. When we spend more abroad than we earn from abroad, THAT is a trade deficit.
Why is it important? Because the money has to come from somewhere and for years, we’ve been borrowing it.
Does it relate to our national debt? Yes, by a slightly circuitous route. When we spend more abroad than we earn, the rest of the world has more of our dollars than we have of their currencies, right? What do they DO with our dollars? They can buy ASSETS in America like the Japanese used to: Rockefeller Center, the Pebble Beach golf course, Columbia Pictures. They can buy U.S. stocks. And/or they can LEND us back the dollars, for which they get – to use ‘Guys and Dolls’ terminology – our “marker”: our Treasury bills, notes, and bonds – our IOUs.
And why does the Treasury need to issue IOUs? To cover our annual deficit, of course, because the government TOO spends more than it earns. Which means that it doesn’t tax us as much as it should. Which means that we have the extra money to buy more stuff from abroad. It also means that our cumulative national debt grows.
So here’s the great daisy chain of being American: We buy more from abroad than we sell. Foreigners – most notably the Chinese in recent years – take our excess dollars and lend them back to us via the government, which can spend more than it earns, which lets us keep our tax money, which we then can the spend abroad.
We paved this trail with Japan in the 1980s. China has simply been following suit.
