Imagine two countries buy from each other, with no one else to sell to.   

                                                                                                          # 1                      #2
Sold to the other, so $ coming in                                     $ in:                 50,000              100,000

Bought from the other, so $ going out to the other:          $ out:                 100000              50,000         

     Net cash gain (parentheses means a negative number                       (50,000)              50,000                                                                  
Profit @ 20%                                                                                          1,000               2,000                                                                                      
People employed to make the goods                                                            5                    10   

Country #2 gets to sell 100,000 worth, but only buys $50,000 worth from Country 1.  Who is better off?   Country #2 has twice the jobs to produce the exports and get twice the money and twice the profits. 
This is what is none as an imbalance in payments, but what is more desirable is a balance of payments

Is this fair?  Yes, if all other things are equal, all they are doing is to choose to buy desirable goods or not.  If one country provides goods at a lower price because its costs are lower, then more would be bought from that country, of course.  That's fair - and people in the buying country get goods cheaper than they otherwise could at home, so they are better off - they, save money and are able to spend or invest that money to be better off.

When is it not fair? If Country 2 puts high tariffs on its imports from th country 1 then that incrreases the selling price to cover the tariffs and then, according to economics, the people in Country 2 will buy less of the goods because of the higher price.   

There is an effect on profits and employment:   Country 2 gets twice the profits for its country's wealth building and it also has employed twice as many people, further increasing the country's wealth for its citizens.

There is an effect on one country's cash balances:  If one country spends more than it takes in, then there is a cash problem over time, just like in a person's budget.  This cannot continue without some repercussions.  It is a "balance of payments" problem for the country on the short end here.  Country #1 has to borrow to make up the difference, with not only an increasing debt problem but an increasing interest cost - that's bad.


China imposes a 25% tariff on American goods and the US imposes a 2.5% tariff. 

There is no reasonable parity (or "equalness of treatment). 

See the solution proposed in China discussion, originally also in Free Trade discussion.


Subsidizing manufacturers.  Another form of an unequal playing field is where one country subsidizes the manufacture of a product for export, so that it is cheaper.  Because it is cheaper, more of it would be bought than ordinary, so exports go up.  The subsidy could be so high that it makes the price of the goods cheaper than they would be to buy inside the other country - and more jobs are lost in the other country.  China subsidizes.   The US is normally on the losing side of this, as it has not figured out how to manage this process.

Even Germany gives a boost to its exports by not charging any income tax on exports (thereby increasing the profits and/or allowing the companies to charge less).  This is known as an incentive, one that causes a greater focus on exports. 

It would appear that America's response so far is:  Duh!

But I'm sure there are people who know better.  So we need to look for another cause.

Politics cause the obstacles.


Principle:  Higher corporate tax rates here than in other countries cause more companies to establish themselves in those other countries, moving the jobs to those countries.

The Democrats want to get more tax revenues from the big corporations, which they disparage and sometimes evilize.  This is part of their campaign to tax the rich and give to the poor. 

They don't seem to realize that they have a very limited perspective and understanding, in that they are causing more harm than the supposed benefit they think they have.  They don't want to "benefit those fat cat corporations", thereby cutting off their noses to spite their faces, in a sense. 

As corporations go overseas because of lower corporate taxes in other countries, we lose jobs here and American wealth also.  The amount of capital available to invest in productive facilities drops, wealth drops further (causing even more of a loss of capital), and we are all worse off.  (This is a weakness of the Democrats, some of whom don't "get it", but, don't worry, there are a number of other things where the Republicans have similar unproductive behaviors and beliefs.)


As in the simple example above, a continued trade deficit is similar to an overspending problem - a form of debt in a sense. 

Our cumulative

We have to borrow.  In order to have people willing to lend to us we need to pay interest.  If we don't pay enough interest, then we can't borrow - and we're screwed.