That doesn’t sound complete. Unemployment is bouncing around multi-decade lows. Real wages are rising. That doesn’t sound deflationary.
FWIW, China’s reported inflation rate is tiny. Like less than 1%. So if we’re exporting inflation, we not exporting very much of it.
I asked perplexity.ai how being a reserve currency nation allows one to export inflation. This is often a complaint of other countries, that being a reserve currency nation gives us unfair advantages. This is one example:
Being a reserve currency nation allows a country to export inflation in several ways:
This ability to “export” inflation gives the reserve currency nation more flexibility in its monetary and fiscal policies, as some of the inflationary effects of expansionary policies are absorbed by the global economy rather than fully impacting the domestic economy.
What you say is all happening in the context of an enormous and growing national debt, which as a means of pumping money into the economy is inflationary. You could say the high national debt and trade imbalance are linked. In order to maintain the same economy, if the trade imbalance increases, so must the national debt.
As the US imports more cheap foreign widgets the demand for US-made widgets declines. US widget employment declines. As employment declines, US government spending increases due to safety nets and the need to stimulate job creation.
China is facing a tsunami of deflationary pressures, from a collapsing property market, high youth unemployment, failing banks, an aging and declining population. It is still shooting for 5% GDP growth by pushing exports. The US through its enormous trade deficit with China is (in a sense) exporting enough inflation to counter China’s deflationary pressures.
We are still an interconnected global economy. Another way of looking at this is through unemployment rather than inflation. Most countries are doing their best to export unemployment in order to maintain domestic employment. Simple example is China and the EU trying to maintain their employment levels by exporting more to the US than they import.
The US trade imbalance, imports being greater than exports, means the jobs lost to imports is higher than the jobs gained through exports. To counter this “import of unemployment” the US deficit spends.
This is also related to the US dollar being the global reserve. This tends to strengthen the dollar relative to other currencies as noted by bjurasz.
A stronger dollar means cheaper imports into the US and more expensive US exports. Very difficult to maintain balanced trade if your currency is the global reserve.
It’s impossible to maintain balanced trade if you are a reserve currency.
It’s called the Triffin Dilemma:
I don’t think it is impossible, just unusual. It could happen if the dollars needed by foreign governments were supplied in ways other than trade, such as by foreign aid. An example of such circumstance would be post-WWII when the Marshall Plan loaned lots of dollars to Europe that were then used to buy American products.
The dollar wasn’t the reserve currency back then but if it had been, balanced trade or a trade surplus would still have been plausible.
In order to maintain the same economy, if the trade imbalance increases, so must the national debt.
That is not at all true. Demand-side economics is turning that on its head. In economics the GDP and money supply are proportional. Increasing the velocity of money has a major impact.
As of July 11, 2024, the velocity of M1 money stock in the United States is 1.573, which is a 13.17% increase from the previous year. The velocity of M2 money stock is 1.36, which is an increase from the previous quarter and year.
My comment is do not lose sight of the import issue here. The consumption going into 2008 rose to great heights. From here in 2024 there is a long way to a manic consumer and market.
I quoted from
Leap1 post but not from leap
Wouldn’t it be the other way around? The fact you run huge amount of debt allows countries to maintain a trade imbalance. They neither have to buy your goods or exchange your dollars cause they can buy debt. If you have less debt, less ability to maintain exchange imbalances assuming all the debt has to be bought in open market.
I quoted that from someone further up in the thread. That is why it was boxed. I do not talk to that guy because he purposely BSes here.
The entire topic circles around the economic ideology. We no longer have supply-side economics, so the quote is wrong.
The velocity of money allows for a larger GDP without increasing the money supply.
