Trade Deficits And The American Empire

Submitted by Bryce McBride,

Over the past couple of months, Donald Trump has sought to change America’s security commitments (most notably NATO) and trade agreements (most notably NAFTA) to better serve his view of American interests. Looking at these arrangements in isolation while imagining the U.S. to be a country like any other, it would appear that the U.S., by shouldering more than its share of NATO’s costs and tolerating decades of trade deficits, has been getting a raw deal. However, American military leadership depends upon global dollar dominance which in turn demands persistent trade deficits. These are the three essential aspects of America’s global empire. If you remove one, you threaten the survival of the other two and the continued existence of the American empire itself.

The American empire is, in the words of John Perkins, the author of the books “Confessions of an Economic Hit Man” and “The Secret History of the American Empire,” the first truly global empire, and the first empire based on indirect economic rather than direct military power. However, it nonetheless resembles every empire the earth has ever known in its basic structure.

Empires such as the Roman Empire exhibit certain features which often, at least in the beginning, improve the lives of their subjects.

First, imperial armies both keep the peace internally and defend against foreign invasion.

Second, conquered nations are compelled to accept and use the empire’s money.

Third, peace and stability and the use of a common currency cause trade to flourish.

Finally, this increase in trade and economic activity in general permits the empire to collect the taxes and tribute payments necessary to pay for the imperial armies upon which the empire’s security depends.

Comparing the current American empire to earlier empires, we can see that the first three features of empire are present.

First, American military power is deployed worldwide; 170 000 active-duty servicemen currently serve in 150 nations outside of the United States in support of its obligations under NATO and other alliances.

Second, the U.S. dollar is the world’s money. As noted economics commentator Jim Rickards put it recently in his article “The U.S Dollar: A Victim Of Its Own Success,” the dollar is used for about 60% of global foreign currency reserves, 80% of global payments and almost 100% of global oil transactions. 

Third, since the end of WWII global trade and global prosperity have expanded enormously under the protection of American arms and under the guidance of dollar-based American-led international economic institutions such as the World Trade Organization and International Monetary Fund.

However, while the Romans could finance their armies by levying taxes on the growing trade of their empire, the U.S. is not able to do so as it does not actually govern the nations it dominates. However, the worldwide use of the U.S. dollar does allow America to gather the wealth needed to fund its military in a manner reminiscent of the tribute payments commonly paid by nations dominated by the ancient Near Eastern empires of the Assyrians, Babylonians and Persians.

As other nations need U.S. dollars to buy oil and other imports, they also need to hold U.S. dollars as foreign currency reserves. The simplest way to acquire dollars is to sell goods and services to the U.S. while accepting dollars (which will never be used to purchase American goods) in payment. Looking at the flow of goods and services, we can easily detect a pattern of tributary states sending treasure to the imperial power. Oil from the Middle East, electronics and apparel from East Asia, minerals from Africa, tropical fruits from Latin America and automobiles and automobile parts from Canada, Mexico and the E.U. all flow into the U.S. from around the world in exchange for dollars which will henceforth be used only outside the U.S. As I wrote in a previous column, the U.S. is the only country in the world able to write cheques (issue dollars) which will never be cashed (used to purchase American goods and services).

Looked at as a whole, the system works. The U.S. provides security and a common currency to the world and in return the world, made prosperous by American protection and financial integration, provides the U.S. with goods and services.

However, when examined through the lens of national accounts these flows of goods and services are identified as trade deficits. To Trump and many of his supporters, these persistent trade deficits have caused the de-industrialization of America and the elimination of millions of American manufacturing jobs. To bring these jobs back, Trump is determined to renegotiate America’s trade deals to try to bring America’s trade accounts back into balance.

As an imperial power and as the issuer of the world’s reserve currency, though, America can never have a balanced trade account. This dilemma was first noted by the Belgian economist Robert Triffin in the 1960s. If America’s trade account was in balance, foreigners would not be able to access the additional dollars needed to purchase imports from one another and to hold as reserves. Without reliable access to dollars, global trade would become very difficult as 80% of global payments are made in dollars. Were global trade to collapse, so too would global prosperity. Finally, without the tribute payments represented by its persistent trade deficits, how could America continue to fund its military commitments?

Fundamentally, Trump seemingly wants to jettison some aspects of American empire while holding on to others, but the problem is that empire is a package deal. It is simply not possible for the U.S. to eliminate its trade deficits without also giving up the benefits which flow to the U.S. (and to the rest of the world) from the dollar’s acceptance as the world’s reserve currency.

Meanwhile, other countries who understand the damage Trump’s incompatible aims may inflict on global trade and prosperity are busy constructing alternatives to the U.S. dollar for international payments and reserves.

Most notably, the Chinese are busy giving their currency, the Yuan, a greater international presence. However, aware of Triffin’s dilemma, China does not want the Yuan to become a global reserve currency. Instead, according to Jim Rickards’ recent article, they appear to be working with the Russians, the Iranians and other countries to create a system where trade is conducted and balances are recorded using some form of distributed ledger technology (similar to Bitcoin), with any net balances settled in gold (the original global reserve currency) at the end of each quarter.

Alternatively, the International Monetary Fund is also working to create a cryptocurrency version of their existing reserve currency (called the ‘Special Drawing Right’ or SDR) which could similarly be used to denominate, record and settle international trade.

Whichever trade settlement system ends up being adopted, the writing appears to be on the wall for the U.S. dollar as the world’s reserve currency. When foreign dollar holders begin seeing dollars becoming either unavailable or less useful for trade, they will not want to hold them as reserves. If they begin to dump them to buy gold or SDRs, the dollar’s value will collapse against other currencies. If, as a consequence, foreigners become unwilling to accept payment in dollars that are fast losing their value, the American government will no longer be able to afford a global military presence. The resulting economic and geopolitical uncertainty will undoubtedly disrupt world trade, threatening both global prosperity and security. On the plus side, though, America’s trade accounts will once again be in balance as Americans holding newly-depreciated dollars will no longer be able to afford foreign goods even as American goods produced with now-cheaper American resources will find ready buyers abroad.

All in all, it would probably be better for everyone involved to continue to tolerate persistent American trade deficits.

Comments

NidStyles powow Sun, 07/22/2018 - 18:42 Permalink

There Empire isn’t American, it’s European. Not sure what it’s going to take to get you cucks on the level. Things have changed. America is a European country. It was founded by Europeans. It’s traditions are European. You’re going to see the relationship between all Eurocentric countries get more entangled all together, not less. It’s already started to happen. 

 

A 9 can never be a 4. Get your minds off of my ass. Go find a woman. Step down if you’re having so much trouble find a woman, there’s plenty out there. 

 

What exactly is that you kids thought I was doing? Raving like a lunatic because I wanted your attention? You were interfering with something that is none of your concern. We aren’t friends. Get the picture yet? I am not looking for sex. The damn Jews did this shit to me to get me to stop from bringing the Europeans together. This is what they do to people they don’t want to have a platform anywhere or to have them discredited. You’re not helping anything.

I did all of this to prevent Europeans from fighting each other.

 

Aww you’re going to make more threats and tell me to shut up again. Get off my coat tails.

In reply to by powow

FBaggins NidStyles Mon, 07/23/2018 - 02:04 Permalink

The lies and BS continue.  The US economy must really be in deep trouble for people like McBride to pump out swill like this.

It is doubtful that McBride is very much a fan of John Perkins especially if he actually read his book Confessions of an Economic Hit Man. The so-called “indirect” methods of securing the use of US currency and Western banks which Perkins did use to debt-rig and coherence weaker nations to become US client nations, he described in his “Confessions” as insidious and deplorable as the use of direct military force.  

McBride ends with the statement:

“All in all, it would probably be better for everyone involved to continue to tolerate persistent American trade deficits.”

“Tolerate” meaning that if you dare to trade oil in any other currency than the US petrodollar, your nation will be completely destroyed.

What McBride does not seem to get is that a world “reserve currency” like the US dollar is supposed to be a “safe haven” currency for foreign governments. The world saw exactly how safe and secure their US treasury bonds were in 2008 when it was discovered there was insufficient security to back US obligations. The solution of the Fed and Treasury was printing trillions more out of nothing to keep the creditors happy, for awhile. Also at the time, creditor nations were using threatening words like “eminent domain”, and coincidentally more real estate, industries, and even infrastructure like harbours, were “bought up” by foreign interests. Also, large tracts of land were taken over by the Feds likely to give foreign creditors more security for the US debt.  This would indicate that there must be other necessary and sufficient conditions than McBride suggests for a reserve currency to work if huge trade deficits are not to take their toll on a national economy over time and if the reserve currency is to survive as such.  

The fact is that the US dollar is no longer a safe haven as a reserve currency, and it will take a lot of trust based on good will, fair trade, fair competition, economic solvency, and trade balancing to restore it to a safe-haven state, which means that sealth and military intimidation are no longer tenable. 

In reply to by NidStyles

Scipio Africanuz Captain Nemo d… Sun, 07/22/2018 - 18:53 Permalink

The situation is very complex due to the petrodollar. There's no way, and I repeat, no way to escape the "San Venganza" contract without pain. Trump, no matter the support, or goodwill can't do it, nobody can! Either back down, and hope the petrodollar lasts for a while yet, a pipe dream, or bell the cat, a most dangerous undertaking.

There's another option, however, exceptionalism stands in the way, and what's that option? Use the remaining energy in the petrodollar, to implement critical reforms, like infrastructure, reasonable defense policies, rejuvenation of next generation technologies, strict regulations of finance, dismantling of media monopolies, withdrawal of subsidies to technology giants, restoration of rule of law, abolition of affirmative action, and the liberation of natural rights, as protected by the US CONSTITUTION!

Will these be done? I don't know, but I know if it isn't, the USA will not survive! That's not opinion, it's observation!

Now, you might think I'm cruel, and that's okay, but welfare needs to be streamlined to the barest minimum, health care too, so folks can utilise whatever they feel best for them, including alternative therapies, palliative measures (medication), needs to be unshackled from the monopoly of drug dealers like the pharmaceutical companies.

There's a lot of work to be done, but the major work, requires the restoration of the rights of states to determine their own destinies, for good, or bad. All these, require the underpinning of honest money, without which nothing will be achieved. Which means that gamblers posing as banks, need to be put out of business, they're vampires!

Speculation is fine, as long as it does not hold the economy hostage!

Will this be done? I don't know, but if it isn't, there'll be no rejuvenation, simple...

In reply to by Captain Nemo d…

gdpetti Hillary Poppins Sun, 07/22/2018 - 15:51 Permalink

Not really, as Trump is a near perfect reflection of the American herd.... he simply doesn't know WTF has really been going on and why. He's done his thing, worked the system, used bankruptcy court often when that became the new standard... He doesn't know about the dollar empire, he just takes it for granted. He knows not what he does... which is why the SG find him so useful in their current engineered script of 'Out with their OWO, in with their NWO'.

In reply to by Hillary Poppins

skbull44 gdpetti Sun, 07/22/2018 - 16:26 Permalink

Yes, the collapse of complex societies can drag on, as it did for the Romans, or it can be relatively quick, as for the Eastern Islanders. Ugo Bardi (see http://cassandralegacy.blogspot.com/) argues it will be quick, having coined the term Seneca Cliff, and Rchard Duncan's Olduvai Theory (see https://en.m.wikipedia.org/wiki/Olduvai_theory) argues that once the power grid collapses we will be back in the dark ages. Can't say we don't live in interesting times...

 

https://olduvai.ca

In reply to by gdpetti

Balance-Sheet Sun, 07/22/2018 - 15:52 Permalink

Rome eventually went bankrupt and really it did not take long though they mined all over their occupied areas for Gold, Silver, Tin, Lead, etc. Rome DID run persistent trade deficits and ran out of money continuously diluting the Silver content of its coins.

So this is WRONG just to start with and now back to work.

DingleBarryObummer Sun, 07/22/2018 - 15:55 Permalink

Looking at the flow of goods and services, we can easily detect a pattern of tributary states sending treasure to the imperial power.

I never specifically thought of it with that wording, but I guess that's what it really is.

MusicIsYou Sun, 07/22/2018 - 15:55 Permalink

Oh gee the American empire is dying, I wonder why? Here's a microcosm of why: People mow their yard, and kill weeds, weeds that feed bees and birds, but then turn around spending $billions to figure out why bees and birds are dying off. America is a rotting dead corpse.

Let it Go Sun, 07/22/2018 - 15:57 Permalink

A huge danger exists when we promote currencies to play an even larger role in trade wars. This came into focus when U.S. Treasury Secretary Steven Mnuchin told reporters at the World Economic Forum in Davos that he endorsed the dollar’s decline as a benefit to the U.S. economy."

We cannot, of course, underestimate the important role currency valuations play in the global economy. The article below cautions about the danger of promoting currencies role in managing trade. As the world's reserve currency the American dollar is far too important to be used as a toy.

 http://Destroying The Dollar Is Not The Solution To Trade Issues.html

MusicIsYou Let it Go Sun, 07/22/2018 - 16:01 Permalink

Oh don't worry, the dollar is not going to be the reserve much longer. Note to the stupid and blind: when you hear about many nations taking their gold reserves out of your country, it means your status as a reserve currency is toast. Comprehension is not high on the list of American qualities, which is of course why the U.S will get stomped in a major world war.

In reply to by Let it Go

snblitz Sun, 07/22/2018 - 15:59 Permalink

The U.S. provides security and a common currency to the world and in return the world, made prosperous by American protection and financial integration, provides the U.S. with goods and services.

Why has the world erected tariffs against the US for 40 years?

Why has the US government and politicians erected so many regulatory barriers to US manufacturing competitiveness?

The cost of providing "security and a common currency" is that our manufacturing must be gutted so "they" can sell to us?

Clock Crasher Sun, 07/22/2018 - 16:07 Permalink

America gets a raw deal?  

So, America imports hundreds of billions of dollars worth of finished goods all "payed" for by printing treasury bonds out of thing air.  Year over year over year.  

I'm not getting the raw deal part.  Sounds like a pretty sweet deal to me.  

SeaMonkeys Clock Crasher Sun, 07/22/2018 - 17:31 Permalink

Exactly.

The winners in this "raw deal" are the American elites who financialized the former productive American economy and turned the securities and real estate into ever higher priced wealth assets that correlated to the continuous decrease in interest rates over the last 35 years.

The average American was duped into believing himself wealthier and happier because consumer items like blue jeans and jars of mayonaise declined in price. Too patriotic and full of denial, the average American rationalized the unattainable housing prices, healthcare, and education as fate.

Fate is how economics is preached in the U.S. We think economics is a science and that therefore whatever happens must happen. Of course, political economy shows that economics is a legal and social creation, and instead of being a system, economics is a practice.

The elites have won, and won huge. We got cheap bric-a-brac and endless personal debt.

In reply to by Clock Crasher

Rubicon727 Chocura750 Sun, 07/22/2018 - 17:31 Permalink

It *is* perplexing the route that Trump is taking. But first, we have to recognize this in NOT just a "one-man show." He is taking council from many in the upper eschelons of financial power. 

It may be his "experts" like Mnunchin recognize the tariff end lines to take before the US military complex initiates its superior power in Washington, D.C. 

But as of right now, it's pure guess work.

 

In reply to by Chocura750

Quinvarius Sun, 07/22/2018 - 16:11 Permalink

Deficits are neither desirable or undesirable to the "US Empire" because currently we print money without backing and it is currently globally accepted.  This allows us to run deficits.  Having deficits does not give us global dominance.  It is an advantage we are allowed due to a pre-existing system.  This system came about because of our post WW2 gold hoarding, and post WW2 economy, not because of our deficits.  The author is totally putting the horse before the cart. Our empire was formed off of our hard currency and production economy, and coasts along on legacy financial systems that use our currency.

To our economy, which is the real issue, deficits of large scale indicate reduced production capacity.  That means fewer jobs.  And that is ultimately destabilizing to our internal security.  And internal security issues, like civil war, are destabilizing to our currency and thus our financial empire.

Balance-Sheet Quinvarius Sun, 07/22/2018 - 21:26 Permalink

Very good summary and by 1965 or so Europe and Japan were adequately reflated and resilient enough to drop Bretton Woods in the early 1970s.

There is neither an obligation or possibility for less than 5% of the global population to provide financing fo 7.7 soon to be 10B people rising by about 83M a year.

As a share of global output the US has dropped from 46% or better since Bretton Woods to about 22% and still falling today. CBs simply have to change their mix of reserves.

In reply to by Quinvarius

Clock Crasher Sun, 07/22/2018 - 16:13 Permalink

The collapse of the Euro is going to buy America another decade of slow painful decline before outright overnight implosion.  

Good for the dozen or so woke Americans to make overseas fortress of solitude preparations. 

Herdee Sun, 07/22/2018 - 16:17 Permalink

England went bust from two world wars. The United States is going bust for various structural reasons but at the top of that list are the multiple wars and military agreements and a thousand military bases worldwide depending on how you classify them all. Trouble is, for this type of economic thinking to continue to exist in order to bankrupt America from within, it now depends on the concept of endless war going on to exist economically forever. History is a guide. If you don't learn from the past you can't see a future. It used to be said by some economists that the United States needs a war periodically to keep its' economy going. Problem is, that war is now an outdated, primitive concept for the survival of humanity and if you look inside the United States, the common man or women doesn't have to look too far to see that the structural problems that exist because the Americans don't spend their tax dollars properly within their own society.

Rubicon727 Herdee Sun, 07/22/2018 - 17:37 Permalink

"England went bust from two world wars. The United States is going bust for...."

That statement is historically wrong.

All that preceded England's decline included the continuous wars before WWI/II including the costs of beating Napoleon. Add to that -greater aggrandizement of "Empire" -the destruction it made in India, and other colonial outposts saw England in even worse shape at the end of WWI.

In reply to by Herdee

SteveK9 Sun, 07/22/2018 - 16:54 Permalink

It's simple.  Give up the empire.  Let something else be the 'reserve' currency, a basket of currencies, including gold, whatever. Global trade does NOT depend on the dollar, it's just been that way for a while, for understandable reasons.  The US does not need the empire.  It doesn't even need trade.  It is a continental-sized country, and has all the resources, and ability to exist perfectly well on its own.  And, if you bring up energy, my answer is uranium.

Consuelo Sun, 07/22/2018 - 17:05 Permalink

A complete re-pricing of labor along with a commensurate standard of living.   Perhaps not in total balance, but say like something resembling the pre-financialization/cheap money era.   Late 70's or therebouts.   After all, any graph which charts the 'rise', always points to that time frame as the point of $lift-off.

besnook Sun, 07/22/2018 - 17:12 Permalink

the 2009 crash exposed the weakness of the dollar empire. all it takes is a small blip in the debt creation model to bring down the entire dollar system including the yen and euro. the chinese and russians are working furiously on making that happen. all dollar holders are fucked.

falak pema Sun, 07/22/2018 - 18:11 Permalink

The US of the Atlantic charter was not supposed to be a hegemonic world empire.

It became one when the cold war divided the world into a manichean dichotomy type conundrum, obliging all countries to align with one ideology or the other. Yalta became the template for real politic world wide.

Thats when the CIA or deep state took over the foreign policy of the US so called "free market" zone of influence based on the mantra of regime change by covert actions and thus captured the oil monopoly of the ME; making the military control of these surrogate nations a necessity both to buy their oil on debt basis thanks to its petrodollar commodity trade hegemony and to increase trade on its own terms based on exploiting cheap labour and control of their resources and markets; in a political framework that was a total debasement of the rules of the Atlantic Charter and of the Gatt and UN mandates; all of its own making; aka do what I say not what I do !

Empires are built on debasing this one rule : you cannot in reality do what I say as I won't let you. You have no real choice whatever the UN/Gatt rules-- that I made-- may say. The iron hand was hidden under the velvet glove!

The Duck is the perfect example of an Emperor who OPENLY tears up the old rule book! No more velvet glove! He is now doing what Dubya did in name of NWO as a move away from Atlantic Charter doctrine post Soviet collapse.

Unlike Obama and the Dems who always hid behind the presence that the Atlantic Charter and the UN were still the official templates; all the while they promoted regime change behind the curtain.

The velvet glove the Dems wore over the iron hand has now been ripped off by the populist and demagogic Trump. Now the world can see the fist and has to move away from Pax Americana. 

At least the Duck has made THAT very clear!