Why the trade deficit doesn’t matter

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  • 84% of our GDP is in the service sector.
  • The last time our trade deficit went down was the financial crisis in 2008.
  • Bigger trade deficits are actually a good sign for the economy.
  • Our economy has to keep reinventing itself.

I’m reading Bob Woodward’s book, “Fear” and it raises some very good points about our trade deficit. The main idea of the chapter on Trump on tariffs is that we have become a service economy. Stores like Sears and The Gap are being replaced by Starbuck’s and restaurants.

In the book Gary Cohn, a fact-based analyst, sparred with Trump, who he said “has a Normal Rockwell view of America”. He went on to say “we no longer have ma and pa stores todays it’s Starbuck’s, J.P. Morgan, nail salons and restaurants”.

Trump responded with “I went to parts of Pennsylvania that used to be big steel towns and now they’re desolate towns and no one has a job or work there”. Cohn responded “that may be true, but remember 100 years ago, there were towns that made horse carriages and buggy whips. In order to survive, they had to reinvent themselves”. The sad part of this story was that Trump didn’t buy this argument.

Lawrence B.Lindsay, a Harvard economist with vast political experience tried to convince Trump. “The United States manufactured things, but the president clung to an outdated view of America — locomotives, factories and huge smokestacks with factory assembly lines”.

Unfortunately, Trump didn’t “get it”. “People don’t want to stand in front of a 2000 degree blast furnace or work in coal mines and get black lung when for the same money they can sit in an air conditioned office”. Trump’s response “I’ve had these views for 30 years”

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Our economy is not a manufacturing economy anymore. Sure, we may be adding some temporary manufacturing jobs, but our economy is in transformation from a manufacturing economy to a knowledge economy.

Consumers are demanding more services and service providers have to step up to ensure their service exceeds consumer expectations. Web sites like Yelp, that rate service establishments are becoming a bigger part of the service economy. Google is positioning itself to rate services and that could mean survival or bankruptcy for many service providers.

As for brands? They provide a service as well. Oreo cookies make us feel good, but if that promise is broken brands are going to have a hard time winning back customers.

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Originally published at www.newmediaandmarketing.com on September 13, 2018.

Written by

Marketing contrarian with over 15 years of developing leading edge and award winning digital marketing initiatives.

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