G-7 Trade

By Stormy

Members of the G-7 are the United States, France, Canada, Italy, Japan and Germany.

For Japan, trade is its life’s blood. According to the Finance Ministry,

It was the first October in 28 years when the country, whose economy is the second largest in the world after the United States, saw its trade balance fall into the red…

Germany is still hanging on to its trade surplus. France also posted a trade surplus; I think wine is good these days.

Italy is running deficit, not sure exactly how much. Canada, as well, enjoys a trade surplus.

Normally, net trade (exports + imports) for most countries trade is not out of balance; that is to say, a country will have a modest surplus or deficit. For the U.S. the ratio of imports to exports is close to 2:1, which is really quite astounding. No major country in the world has such a high ratio of imports to exports.

Globally, net trade has to be zero (total exports + total imports must be equal), even if total trade shrinks. Every country wants a trade surplus, clearly an impossibility.

China said

Tuesday its trade surplus hit a monthly all-time high of 35.2 billion dollars in October, on the back of rising exports despite the global economic turmoil.

Nonetheless, if total trade shrinks, then economic activity will shrink as well. We are in for a long and difficult period, especially those in the U.S.

Deflation is here. As it ripples through economies, every attempt will be made to keep it at bay. As asset prices plunge, so too must salaries and income. Think of each salaried worker screaming as he tries to keep his share of the pie. Ultimately, he will have to accept less for a paycheck. If the cost of the product he makes falls, so too must his salary. Whole lot of dominoes falling.

Debt, debt is the killer, for the debt he carries is now portionally larger relative to his income.

For this reason alone, the U.S. is in more difficulty than most.