Australia's Never-Ending Trade Deficit

A blog about business and economics.
Aug. 21 2012 12:47 PM

Australia's Never-Ending Trade Deficit

150036963
Young athlete Adam Abbott is photographed with the Australian kangaroo mascot at the William Morris Gallery in Waltham Forest, on Aug. 9, 2012 in London, England

Photograph by Denis Doyle/Getty Images for AOC.

Kevin Drum wonders what operational steps could reduce the U.S. trade deficit. I have some half-baked answers to this, but something that I think is worthy of more discussion is Australia's trade deficit. Below is a chart I poached from their treasury, which goes back further than anything else I saw online. But the interesting thing is that according to assentially all sources, Australia has always run a large balance of payments deficit except for one flukey year in the early '70s. At various times different politicians and investors have proclaimed this unsustainable, but it's always been sustained. And it keeps on being sustained even though Australia is currently undergoing a boom of primary commodities exports to China. What's more, despite this never ending trade deficit Australia decided about 20 years ago to stop having recessions which is pretty enviable.

1345568015662

So what's going on?

Advertisement

Two things, I think. One is that Australia is a very respectable country with a stable liberal democracy just like the United States or Germany or Japan. But the other is that Australia has a very fast-growing population. It's growing substantially faster than the American population, to say nothing of Japan or the major European countries. And if you're thinking about savings and investment in the broadest and most generic sense, that's exactly where you want to invest. A country where you can say with confidence that 20 years in the future the same political framework will be in place and there will be much more overall demand for land and goods and services due to the growing population. So because Australia is such a fundamentally sound investment opportunity, it gets to run a trade deficit. And it will always get to run a trade deficit until either it decides to sharply curtail immigration and population growth, or until India's political system strikes rich foreigners as more credible and stable. There's simply a shortage of countries that combine a strong international brand with population growth, so those places that have it get to basically "export" safe haven investment status and import actual material goods. 

Now the United States is no Australia. We're a lot bigger and we're not growing our population as rapidly. But we're closer to Australia than to being Germany or Japan. Which means I think we can get away with open-ended current account deficits if we want to, and that appropriate policy would get us full employment without closing the trade deficit.

But I'd rate my degree of confidence in this conclusion as relatively low. Certainly I'm not an expert on the Australian economy. But I do think the Australian example of twenty recession-free years and many many decades of current account deficits ought to be dealt with when thinking about the relationship of the balance of trade to America's employment issues.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

TODAY IN SLATE

Politics

Meet the New Bosses

How the Republicans would run the Senate.

The U.S. Is So, So Far Behind Europe on Clean Energy

The Government Is Giving Millions of Dollars in Electric-Car Subsidies to the Wrong Drivers

The Best Thing About the People’s Climate March in NYC

Friends Was the Last Purely Pleasurable Sitcom

The Eye

This Whimsical Driverless Car Imagines Transportation in 2059

Medical Examiner

Did America Get Fat by Drinking Diet Soda?  

A high-profile study points the finger at artificial sweeteners.

A Woman Who Escaped the Extreme Babymaking Christian Fundamentalism of Quiverfull

John Oliver Debunks the Miss America Pageant’s Claim That It Gives Out $45 Million in Scholarships

Trending News Channel
Sept. 20 2014 11:13 AM Watch Flashes of Lightning Created in a Lab  
  News & Politics
Over There
Sept. 22 2014 1:29 PM “That’s Called Jim Crow” Philip Gourevitch on America’s hypocritical interventions in Africa.
  Business
Moneybox
Sept. 22 2014 1:37 PM Subprime Loans Are Back! And believe it or not, that’s a good thing.
  Life
Lexicon Valley
Sept. 22 2014 1:22 PM Is Arabic Really Just One Language? 
  Double X
The XX Factor
Sept. 19 2014 4:58 PM Steubenville Gets the Lifetime Treatment (And a Cheerleader Erupts Into Flames)
  Slate Plus
Slate Plus
Sept. 22 2014 1:52 PM Tell Us What You Think About Slate Plus Help us improve our new membership program.
  Arts
Television
Sept. 22 2014 2:12 PM Crusader, Sans Cape The superhero trappings of Gotham are just a clever disguise.
  Technology
Future Tense
Sept. 22 2014 12:14 PM Family Court Rules That You Can Serve Someone With Legal Papers Over Facebook
  Health & Science
Bad Astronomy
Sept. 22 2014 11:23 AM Two Impacts, One Landslide … on Mercury
  Sports
Sports Nut
Sept. 18 2014 11:42 AM Grandmaster Clash One of the most amazing feats in chess history just happened, and no one noticed.