US trade deficit with India sign of strength, Trump doesn't understand this: NYU economist

New York (IANS) US President Donald Trump's worry about trade deficits with countries like India "does not make much sense" and he should instead see it as a sign of American strength, a top economist from the New York University's Stern School of Business told IANS here.

"A lot of economists look at trade as ships going back and forth carrying cars and TV sets and grain and soybeans and they say well, that's what's really important, and the trade deficit is just a spin-off. But you could look at it another way and I say that maybe the finance is more important than the trade," NYU's Richard Sylla told IANS here on Wednesday in response to a question on an elusive India-US trade deal that's been dogged by escalating tensions and constantly shifting goalposts.

Sylla is Chairman of the Board, Museum of American Finance and Professor Emeritus of Economics at New York University Stern School of Business

Sylla explained that America may simply have to run a trade deficit "in order to allow people in other countries to get the dollars to buy our stocks".

"So maybe, it's not that economic trade is the dog and finance is the tail. It might be that in our modern world, finance is the dog and trade is the tail," according to Sylla.

President Trump "doesn't quite understand" the nuance, Sylla said. He said Trump's worldview about trade deals having to be balanced is a flawed construct.

Speaking of Trump's trade policy, Sylla said: "He doesn't like India having a trade surplus with the US. China's trade surplus is much greater. So is Japan's, but maybe that's not so bad for the US."

Rewinding back to the time when Japanese goods were seen with great suspicion in the US, Sylla said the Japanese holdings of US treasury bonds went up at the time and Americans got the better part of the deal.

"Americans were getting Sony TVs and Toyota cars. And we're giving Japan pieces of paper. Does this show you how much Japan is exploiting the US? So if you think about it. It's really a pretty good deal for Americans."

More trade means more trade to be financed and that's a good thing in general and the financial markets usually react positively to trade deals, Sylla said.

According to the US Trade Representative's office, American goods and services trade with India totalled nearly $142.6 billion in 2018. Exports were $58.7 billion, imports were $83.9 billion. The US goods and services trade deficit with India was $25.2 billion in 2018.

For now, Trump has said he's saving the "big trade deal" between India and the US for later and not sure if it can be done before the US elections.

Trump is scheduled to visit India on February 24-25 against the backdrop of trade hostilities between the two countries that have escalated since 2018 after the US slapped tariffs on steel and aluminium from India.

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