Gongol.com Archives: February 2025
February 15, 2025
One of the main objections cited against the practice of a country running trade deficits with others is that the accumulated deficits ultimately represent a transfer of capital, now or in the future, from the country running the deficit to the countries on the other side of the ledger. Some very intelligent people have raised this objection, as have more than a few unintelligent ones. ■ Foreign ownership is often unpopular: Just look at the excruciating lengths to which two Presidential administrations have now gone to block Nippon Steel from buying US Steel. And Japan is one of our strongest allies -- its interests are tightly aligned with America's, both geopolitically and economically. If ever there were a friendly country into whose hands we could trust to place a few assets, Japan would be at or near the top of the list. Yet even with that in mind, the objections remain loud and often deeply irrational. ■ But there is a different way to look at trade deficits. Lots of countries have really big export economies in very specific products: Finland exports a massive amount of wood. Saudi Arabia exports oil and its byproducts. Iceland exports lots of aluminum. These countries have certain inherent competitive advantages in those products, and it would be silly to expect them not to make full use of those advantages. ■ What if the United States were seen to have a massive natural advantage in business formation? What if our strength isn't an endowment of natural resources, but the ability to start valuable new companies? In other words, what if LLCs and Delaware-based S-Corps are our version of Saudi Arabian oil? ■ And what if that's OK? Ecuador produces more bananas than its population could possibly eat, so it exports huge volumes of bananas. Perhaps we simply ought to see (to oversimplify a bit) that the United States produces more shares of stock than our population is willing to buy -- at least, in comparison with the bananas and big-screen TVs and other stuff we'd rather buy -- and so we export those shares of stock rather than letting them go to waste here. ■ There may, of course, be sound reasons to object to other aspects of our trade behaviors, and some people are so unwaveringly opposed to foreign ownership of any type that they object on that principle alone. But just like Ecuador has a physical climate especially conducive to growing bananas, the United States has a legal, social, and economic climate that is especially conducive to business formation. ■ Maybe we should recognize that as a unique strength -- one that ought to temper how we look at trade deficits. If we can put aside our reflexive nationalistic pride, is there anything entirely wrong with selling off a few businesses once in a while, especially if our capital markets are so well-developed that domestic investors have countless other investments from which to choose? ■ There are few, if any, real obstacles to Americans buying American assets, so the ones that ultimately end up for sale on a global market might well be those that Americans don't see a future in owning. Besides, if those American companies require further investment to stay competitive, most of the spending on them will probably take place with nearby American vendors. If we can think of business creation as a special American export, then we might not be in the dire straits that conventional thinking about trade may lead us to believe. Maybe we're just bottling our entrepreneurial spirit and selling it for a premium price.
