What happens to U.S. dollars when we trade with China? They have 4 options to choose from:
1. Send that money back by purchasing American goods
2. Invest in the American stock market (buy assets) because it's harder to do so in China. Our stock market is a very attractive option for foreigners based on the fact that our capital account balance has seen a surplus every year
3. Buy from a country other than the U.S. (either products or assets). Eventually, this money will make it's way back to the U.S.
4. Eat the $$ - What seems to be the most absurd option would actually help the U.S. the most because it would raise the value of the dollar and make everyone richer.
Even though we have a trade deficit from our current account balance, our capital account balance balances it all out and we end up having a net balance of zero (we always have to have an international trade balance of zero because of the 4 options described above).
None of these options hurt the U.S. In fact, they all help us, so how can one argue that trade with China is bad? There is NO EVIDENCE that trade with China and the trade deficit are bad.
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