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Since the tariffs have gone into effect, the growth rate of the deficit has increased.
Businesses were importing from China because products from China produced the best combination of cost and marketablility. In other words, Chinese imports maximized profits. Take some hypothetical Chinese import that cost $20. With a 20% tariff that product now costs $24. Another country has a similar product available for $22. That product becomes the more profitable product. The government collects no money from tariffs and the nation adds $2 to the trade deficit for every one of those products imported.
As China and some other countries find alternate sources for American exports, American business exports fewer products. That increases our trade deficit.
Tariffs increase our trade deficits.
If you follow the money trail, trade deficits have some unexpected results. For the past 40 or 50 years, trade deficits have financed our deficit spending. At first it was the Saudis. We sent them dollars for oil and they borrowed that money to our government to finance our deficits. Now it's the Chinese - we send them $$ for goods and they send them back by buying up our debt.
In theory, higher deficits make more money available to finance higher government spending. If we reduced the trade deficit to 0 (which seems to be utterly impossible) we would dry up many of the sources of government spending, which would ultimately rein in government spending.
As long as we can borrow money, there is absolutely no incentive for Congress to not keep borrowing money and channeling it to their constituency, and I don't mean the citizens who voted for them, I mean the people who financed their campaigns and the political party with which they affiliate.
Who's going to pay for it? is a legitimate question when tax cuts are enacted during a period of deficit spending as well as when universal health care is proposed. Someone has to pay for both. Right now everybody is betting that other countries will continue to have so many dollars we send them that the only thing to do with them is finance our government.
Businesses were importing from China because products from China produced the best combination of cost and marketablility. In other words, Chinese imports maximized profits. Take some hypothetical Chinese import that cost $20. With a 20% tariff that product now costs $24. Another country has a similar product available for $22. That product becomes the more profitable product. The government collects no money from tariffs and the nation adds $2 to the trade deficit for every one of those products imported.
As China and some other countries find alternate sources for American exports, American business exports fewer products. That increases our trade deficit.
Tariffs increase our trade deficits.
If you follow the money trail, trade deficits have some unexpected results. For the past 40 or 50 years, trade deficits have financed our deficit spending. At first it was the Saudis. We sent them dollars for oil and they borrowed that money to our government to finance our deficits. Now it's the Chinese - we send them $$ for goods and they send them back by buying up our debt.
In theory, higher deficits make more money available to finance higher government spending. If we reduced the trade deficit to 0 (which seems to be utterly impossible) we would dry up many of the sources of government spending, which would ultimately rein in government spending.
As long as we can borrow money, there is absolutely no incentive for Congress to not keep borrowing money and channeling it to their constituency, and I don't mean the citizens who voted for them, I mean the people who financed their campaigns and the political party with which they affiliate.
Who's going to pay for it? is a legitimate question when tax cuts are enacted during a period of deficit spending as well as when universal health care is proposed. Someone has to pay for both. Right now everybody is betting that other countries will continue to have so many dollars we send them that the only thing to do with them is finance our government.
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