> Why must a country run a trade deficit to retain its global reserve currency status? Because when your currency is the global reserve currency, the entire world constantly hungers for it in order to use it in all the various countries’ international trade between each other. The only way to keep those countries constantly supplied with dollars is for Americans to buy tons of foreign imports, which effectively sends dollars to those countries, since these purchases are made with dollars
So... the problem with the US being the reserve currency is that it makes other countries cater to our tastes because they want our money...?
Yes, abd this appreciates USD, in turn makes production costs in US high, so the rest of the world doesn't buy what US produces.
It is by itself sustainable though as US doesn't only export produced goods but tech etc which the world wants. A valuable dollar funds this tech, in a sense whole world funds the US trch sector.
Not only “in a sense,” but also directly — many of the parent or grandparent LPs to US venture firms are foreign wealth funds, and US tech companies are (by way of our capital markets) held as an investment by many foreign nations (e.g. Norway’s sovereign wealth funds).
So we enrich foreign nations through our technology companies and capital markets. This is to the detriment of our domestic laborers, but it’s a great deal for our top ~30% “laptop class” that earn disproportionately well and have their savings stored in those same markets.
I'm not even sure that it is to the detriment of our domestic laborers. It certainly makes domestic manufacturing less competitive, especially the lowest skill/barrier to entry manufacturing. However, the US manufactures a LOT still, there are loads of reasonably well paying jobs for lower skill worker. I will say that housing and healthcare costs are high in the US but those are not things that are imported.
It also depends on what you think people want. Do they want a vast array of cheap consumer goods and entertainment, or do they want more affordable basics, like housing, cars, and healthcare?
If you go by PPP alone, the US is already in second place [0].
PPP is a horrible metric, but I’m not sure GDP per capita is any better.
His argument is pretty circular, which is e.g. not that Americans would work for Vietnamese wages but that we'd produce automation that can do the same work. But in that case: why aren't we doing that today?
The answer is that it's still more advantageous to pay Vietnam to make our clothes.
It's basically just no free lunch theorem: we can afford the CapEx of doing such a thing today precisely because we have better alternatives. If there were no better alternatives and we had to produce our own garments, we wouldn't be able to afford the CapEx to do it in a dramatically more labor-efficient manner.
We could already do it, then we automated huge portions of it, then as other economies matured we handed that work to them and developed into a high-margin, high-income knowledge economy.
We can rewind back to a middle income economy if we want, I guess, but I don't see the appeal.
I'm open to the argument that we want some domestic mass manufacturing capacity for reasons of self-sufficiency, supply chain resilience, etc, but just come out and say it: we need handouts to keep certain strategic industries alive despite their lack of economic viability in the marketplace.
The people you are enriching in other nations are also the same class of those nations. Actually, even a smaller percentage of them. It's so much more harder to raise capital in the EU for tech start-ups for this reason. They prefer investing in the SV. Biggest money markets around here is the London City, whose money flow doesn't drip to the UK population.
These tariffs wouldn't hit these privileged people though, both in US and abroad, as they are planned and implemented by the same people. It will hit the lower classes, mostly the middle class.
So... the problem with the US being the reserve currency is that it makes other countries cater to our tastes because they want our money...?