How can the United States restore a balance of trade?

Question

I think we should have a fine balance on imports/exports. Although foreign-manufactured products are cheaper, ou country has seen the consequences of relying on inexpensive imports. American companies should definitely limit their foreign contracts. This imbalance of trade also has cost the American people jobs.

Answer 1

Interesting. I think you get the basic idea that the devaluation of the dollar over the last few years is beginning to make this change. But as long as investment in the US remains high (the capital account), the current account will remain imbalanced.
In other words, the trade imbalance exists in part because people and governments outside the US invest in the US. But as high quality investment opportunities begin to exist in other countries, the trade balance will return closer to neutral in the US (perhaps even surplus someday).
Cutting the corporate tax rate, as suggested by someone else, would have little impact on the trade balance, and somehow I doubt that same persons suggestion that every person in a firm would get a 9% raise if taxes were lowered. More likely scenario is that the top dogs would take all the increased profits for themselves and offer less than infaltionary increases to the average workers (as we can see happening in real life).

Answer 2

The fall of the value of the dollar that has taken place over the last year will make exports cheaper and imports more expensive and over time will move us toward trade balance. How ever as long as US savings rates remain low,. we will need to attract foreign capital and since the inflow and outflows on money MUST balance there will be some trade deficit. Much of the foreign investment is to finance the government deficit so balancing the federal budget or even ruining a surplus would also help. The increase in the value of stocks and houses have allow Americans to accumulate wealth without saving, but that will no longer be true in the future so savings rates should improve. If we just limit imports making no other changes the value of the dollar would rise and our exports would fall and we would still have a trade imbalance.

Answer 3

Actually the imbalance has created a lot more jobs than lost. America should not try to restore the balance. People will do it on their own when it make sense. If America really wanted to restore the balance, it would deregulate its industries and reduce its tax rate. China just reduced its corporate tax rate to 25%, the United States charges 39%, the highest in the world. That makes our goods more expensive and hence non-competitive.

One of the things few people are aware of is that corporate profit rates are intimately tied to pay increases. A sustainable change in the rate of corporate profits is equal to the rate of change of wages. For example, if a firm's profit rate goes from 10% to 10.5%, sustainable, its workers will see a 5% raise on top of inflation increases. If we had 4% inflation, that would be a 9% pay increase.

It isn't a question of should we be buying foreign, it is are we being competitive. No we are not. Change the laws and taxes and you will see a pay increase. Employees and shareholders are locked into a 1-1 relationship. The only thing that makes employees better off are those things which make shareholders better off. The things that makes America better off are those things that make business better off.