> The rest of the world buys US treasuries cause we buy their goods. China buys treasuries because we buy goods with dollars. China has to do something with the dollars.
It strikes me as extremely odd that it's become so normalized that the U.S.'s role in trade is simply as a buyer of goods.
In any transaction, both parties are typically better off after having made the transaction, else one party would refuse.
The U.S. clearly benefits by acquiring goods, but is China really left scratching their heads with what to do with the dollars (and then throwing a dart and purchasing treasuries with their overflowing dollars)?
If China (in aggregate) is never interested in buying our goods, why would they want to compound the number of tokens that can be redeemed for future goods (by buying bonds)? Do they simply not want to buy goods now, but know they will want to in the future? Are they entirely interested only in the assets, but think the goods are not valuable, or at least not valuable for them, but maybe are for others? Doesn't that put into question the value of any assets the country might have to offer if the goods that the country provides are seemingly undesirable?
Clearly, the value the U.S. is providing can't simply be as the purchaser of a good. The U.S. is trading future obligations for current goods, and the trading partner must have some belief that they will eventually execute that option on future obligations, or trade the future obligation to someone else who will want to execute it, else this token clearly has no value.
However, I do also wonder how much of the demand of U.S. dollar is simply a system of inertia. At some point the trading partners may realize they have no interest in acquiring tokens that they will never redeem, even if this token can be compounded further for more tokens that will never be redeemed. Currently, it seems China is interested in acquiring these tokens because of the reserve currency status, as they trade with other partners in.
The other possibility is this entire narrative is incorrect, and there are other benefits to running massive trade surpluses beyond the future token redemption. Skill building could be one these benefits - the deficit trading partner (U.S.) is shaping the development of labor markets in an journeyman-like form.
> It strikes me as extremely odd that it's become so normalized that the U.S.'s role in trade is simply as a buyer of goods.
It should strike you as odd, what you're saying is wrong.
The US exports $2.5 trillion worth of goods and services, including $1.7 trillion of goods.
The US is the world's #2 exporter of goods. With services included, the US is nearly the world's #1 exporter. In 2018, the US was behind China by only about $80 billion in total exports. That's nearly three times the #4 export country, Japan.
Of course, I'm familiar that the U.S. exports goods as well. Certainly the relationship specifically with China is one of a large and continuous trade deficit.
However, the broad intention of my previous comment is to illustrate that the narrative being that the U.S. is simply one of purchaser is lacking, or else if that narrative is correct, it will not be true for much longer once the trading partners catch on.
The same question was said about Japan in the 1980's. There was much hand-wringing over our trade deficit with Japan. (Though I had an econ professor back then who I thought put it best: "We're getting cars and they're getting pieces of paper, and somehow we're the ones getting screwed?")
The professor's quip is cute but myopic. The pieces of paper are claims on future production so the true cost is seen later.
The end result was
- American Boomers got cars
- Japanese boomers got USD
- Japanese investors then spent much of the USD on things like US real estate investment vehicles (hardly Japan only, any country that collected large amounts of USD due to trade deficit)
- American Boomers in prime markets saw tremendous returns on real estate
- and American millennials 30 years later got priced out of houses
Yes I know foreign investment is not the only cause of rapid price growth in real estate. But it is a significant contributor.
It strikes me as extremely odd that it's become so normalized that the U.S.'s role in trade is simply as a buyer of goods.
In any transaction, both parties are typically better off after having made the transaction, else one party would refuse.
The U.S. clearly benefits by acquiring goods, but is China really left scratching their heads with what to do with the dollars (and then throwing a dart and purchasing treasuries with their overflowing dollars)?
If China (in aggregate) is never interested in buying our goods, why would they want to compound the number of tokens that can be redeemed for future goods (by buying bonds)? Do they simply not want to buy goods now, but know they will want to in the future? Are they entirely interested only in the assets, but think the goods are not valuable, or at least not valuable for them, but maybe are for others? Doesn't that put into question the value of any assets the country might have to offer if the goods that the country provides are seemingly undesirable?
Clearly, the value the U.S. is providing can't simply be as the purchaser of a good. The U.S. is trading future obligations for current goods, and the trading partner must have some belief that they will eventually execute that option on future obligations, or trade the future obligation to someone else who will want to execute it, else this token clearly has no value.
However, I do also wonder how much of the demand of U.S. dollar is simply a system of inertia. At some point the trading partners may realize they have no interest in acquiring tokens that they will never redeem, even if this token can be compounded further for more tokens that will never be redeemed. Currently, it seems China is interested in acquiring these tokens because of the reserve currency status, as they trade with other partners in.
The other possibility is this entire narrative is incorrect, and there are other benefits to running massive trade surpluses beyond the future token redemption. Skill building could be one these benefits - the deficit trading partner (U.S.) is shaping the development of labor markets in an journeyman-like form.