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The trade deficit is high because our economy has gotten more advanced over time.At first glance, this may sound counter-intuitive, but hear me out:The “stuff” we produce today is more sophisticated than before. Generally, this means that it is by nature less physical and more intangible (i.e. software, services and intellectual property). Instead of producing physical things with our hands and physical labor, the value has shifted to producing intangible things with our minds and creativity.Our economy has gotten more specialized over time. Instead of handling every single piece of the manufacturing process, we have broken it up into a series of discrete steps and analyzed each step to decide whether certain activities are worth more of our time to handle than others. As above, this typically means activities where we use more of our brains vs. our hands. To free up resources on the higher value-add activities (which includes living more comfortable lives), we have diverted some of the more labor-intensive activity to our trading partners.As our economy has become more sophisticated, traditional metrics like “trade deficits” are less representative of how real economic value flows in international trade. To gain a more holistic view of it, we need to understand something called “Balance of Payments” or “BoP”.Even BoP is unable to fully capture all of the economic value flows. The increasingly intangible nature of the products and services we produce has led to a rise in the artificial shifting of trade offshore for tax purposes, to the point where goods and services created by Americans and sold to our trading partners do not even show up in our international trade accounting.After accounting for all of these points — which I will explain in greater detail below — it is important to note that we do still run a fairly large deficit with the rest of the world. However, this number is much smaller than the headline figures that are often bandied about.Also significant is the concept that we need to run some level of deficit with the rest of the world as part of the U.S. Dollar’s role as the global reserve currency, which turns out to be a very powerful and highly advantageous tool at our disposal.International trade is complicated and not the easiest thing to understand but I will try my best to explain using real-world examples. I believe it is worth taking the time to think about this topic so we can be better equipped (as a society) to make smart decisions when it comes to trade policy, especially at this critical juncture in history. The decisions that we make today will have long-lasting ramifications that will impact us for decades to come.To start, we will examine why the traditional “trade deficit” is really just one piece — that is becoming less significant over time — of international trade. To understand why, we need to get a little smarter on the intricacies of international trade and Balance of Payments accounting.Then, we will take a look at how the increasing sophistication of our economy has shifted value flows within BoP from “trade deficits” to other categories. We will also take a look at how certain trade flows aren’t even captured due to tax tricks that multi-national corporations utilize to minimize taxes. Finally, we will look at how this impacts our thinking on trade policy.Specifically, we will examine this question through the lens of the U.S.-China bilateral relationship, as it is one of the most important economic relationships in the world today and one that has been dominating news headlines in recent months.Welcome to class, my friends. It’s time to put on your learning caps. There might be a pop quiz at the end.BONUS: There will be guest appearances by Alec Baldwin and Emily Ratajkowski. And to spice things up even further, you are encouraged to channel the voice of Ben Stein, who plays an economics teacher in Ferris Bueller's Day Off:“Balance of Payments” 101: The Current Account“Balance of Payments” represents … anyone? anyone? … money flows coming in and out of a country for things like international trade and cross-border investment.At a very high level level, one can think of this as all of the various cashflows going in and out of your banking and investment accounts, perhaps as captured in an online personal finance service such as Mint.One difference is that most of the money flows for a household take place externally whereas for a country — especially a large one like the United States — most economic activity takes place internally, i.e. within the borders.BoP does not measure activity that does not cross the border. So if the foreign subsidiary of an American company sells in that foreign country, and decides for whatever reason not to send the profits back to headquarters, this activity is not captured in the BoP (at least not directly).In other words, BoP represents only a small percentage[1] of the economic activity of a large country like the United States — and it only measures the economic activity that officially crosses the borders. This is a really important idea that will become more evident as you read further.Within the Balance of Payments, there are two major types of money flows:Current Account — regular, ongoing economic activity like trade and income from foreign investments. In the household example, this is analogous to your salary, business income and income on passive investments/assets like dividends and interest income.Capital/Financial Account — investment-related economic activity like investing in foreign subsidiaries, issuing debt, etc. This is analogous to investing in stocks, or buying a house (both the equity down-payment as well as the mortgage you take out).We will first go through the Current Account. In 2017, the U.S. ran a $449 billion deficit on its Current Account — this is the number in the bottom-right corner of the table below. (Note: This is an important table; I will refer back to it a number of times throughout the discussion.)Source: U.S. Bureau of Economy Analysis (BEA)Outside of the trade in goods and services, the other big components are “Primary Income” (Line 2) and “Secondary Income” (Line 3). These categories represent, among other things, income generated by foreign subsidiaries, investment income generated on holdings of foreign securities, salaries paid to expatriates, remittances from foreign labor, etc.The other side of the BoP equation is the Capital/Financial account. We will get to this later but for now, let’s look at how the value flows from international trade are captured by the BoP. Specifically we will take a look at how our evolving economy has shifted certain values within the various Current Account line items.Economic Trend #1: Paper to SoftwareIn 1992 cult classic Glengarry Glen Ross (adapted from the 1983 Pulitzer Prize-winning play), Alec Baldwin plays the role of an experienced salesman who is tasked with motivating a few low-energy brokers in a sleepy branch office of a real estate firm. In one of the most electric single-scene performances in modern film history, he delivers a masterful and vicious monologue on the art of selling. He is our first guest lecturer.As you watch the monologue, pay attention to all the various selling tools of the day — index cards with the sales leads, spinning Rolodexes, poster advertisements on the walls, office supplies, landline telephones, and motivational prizes like cars and steak knives. (Note: You may have to watch a couple of times because Baldwin really does deliver a captivating performance.)Seven years after the film was released, software executive Marc Benioff left Oracle to start a new type of software company, one that delivered its services through the browser on an on-demand basis instead of having to be purchased up-front and delivered as an application on a PC or workstation. The first business department that it targeted was the sales department and was named, aptly, salesforce.com.Today, its software powers everything from selling, marketing, customer service to communications for thousands of businesses with operations spanning the globe.In just a few decades, the shift from the “pen and paper” era of Glengarry Glen Ross to sales automation software delivered as a service represented a shift from the physical world to the intangible. And the same shift can be seen in countless other industries and businesses across the globe.On the BoP, trade of physical goods is accounted for differently than trade of intangible goods. This is rooted in history.When modern nation-states started to keep detailed records of their international trading activity, essentially all trade was comprised of physical goods. Physical goods would cross borders and money would be exchanged. Nation-states were particularly interested in keeping detailed records of international trade because it was one of the most popular ways to raise money to fund governments and armies. For example, in 1915, approximately 30% of U.S. Federal Government revenue was funded through customs duties compared to 6% from the newly instituted income tax[2].As the economies and technology advanced, it became possible to start trading non-physical things. For example, let’s think about leisure travel. Back in 19th-century America, round-trip international tickets were not common. Usually international travel was a one-way ticket, i.e. permanent immigration and settlement. But improvements in the speed and cost of new transportation options opened the door to leisure travel. Today, leisure travel is one of the larger intangible services that is traded between countries. On the BoP statement, international travel is accounted for under Line 1.B.iii “Net Exports of Services / Travel” and contributed a $76 billion surplus to the American economy in 2017. Living in Lower Manhattan, which draws over 14 million visitors a year, many of them international, I witness this on a firsthand basis every day.Going back to our Glengarry Glen Ross example, whereas Rolodexes (or is it Rolodices?[3]) and steak knives would show up on Line 1.A. on the table above (“Net exports of Goods”), software and intellectual property would show up elsewhere, possibly under Line 1.B “Net exports of Services”.The good news is that when most people refer to the overall “U.S. trade deficit”, they refer properly to “Net exports of Goods and Services”. (Unfortunately, “most people” does not include the Leader of the Free World as we will see down below.)For example, from a February 2018 Wall Street Journal article[4]:The U.S. trade deficit in goods and services grew 12% last year to $566 billion, its widest mark since 2008 and a challenge for President Donald Trump, who has pledged to re-balance the nation’s books with the rest of the world.However, I have seen issues arise when when we start talking about bilateral trade surpluses/deficits — such as the one between the U.S. and China — where they only focus on the goods portion. For example, from the very next paragraph in that article (emphasis mine):The goods deficit with China alone rose 8% during Mr. Trump’s first year in office to a record $375.2 billion, or nearly half the total global gap between U.S. imports and exports, the Commerce Department said Tuesday.By including services in the first paragraph and ignoring it in the second, this presents a misleading picture of the U.S.-China trade relationship. Specifically, it overstates the “true” deficit we have with China. The slightly better figure to use would be $336 billion[5], which nets out the positive surplus that the U.S. gets from the trade of services with China.Further, since much intermediate trade goes to China via Hong Kong, an even better figure to use would be $301 billion, which factors in the trade surplus the United States has with Hong Kong — which is accounted for separately from Mainland China[6].But as I will explain in the next section, due to the increasing specialization in global supply chains, even this $301 billion figure over-states the “true” value deficit between China and the United States.Economic Trend #2: Global/Special-ization of Supply ChainsGlenn Luk's answer to Where does the money I pay for an iPhone go?In this earlier answer, I took the reader on a journey around the world, from the initial purchase of an iPhone in London, to its manufacture in China, to its original design in California. At the end, I summarized by showing how the economic value of a £999 iPhone is split up between the various contributing economies.One of the key takeaways in the answer — which should be fairly evident after all of the frequent flier miles accumulated on the journey — is that the global supply chain today has gotten really complicated. Components are designed in one place, manufactured somewhere else and shipped to a third place to be assembled by machine-assisted hand. IP is invented in one region, domiciled in another (for tax purposes) and monetized in an increasing number of creative ways.This was, of course, very different two centuries ago, when “goods” were largely manufactured from start to finish in a single economic zone or region. Think back to the Triangular Trade of the 18th and 19th centuries when manufactured goods would flow from industrialized England to the Americas, raw commodities would flow from the Americas to Europe and, of course, the despicable trade of humans from Africa to the Americas[7]:Because of this, trade surpluses and deficits back then were pretty accurate reflections of the true economic value flows between nation-states. But as supply chains specialized over time — driven by a massive reduction in friction costs, primarily in the form of lower tariffs and lower transportation costs — international trade accounting has had a tough time keeping up with the changes. This is especially true when applied to measuring bilateral trade relationships such as the one between the U.S. and China.The particular issue here is that China captures only a fraction of the economic value of the (primarily) physical goods that it exports to the United States. But from an international trade accounting and BoP perspective, “Made in China” gets full credit.For example, I showed in the iPhone example how China captures at most one-eighth of the production value (BOM) of an iPhone … and an even smaller amount of the retail value:It needs to import dozens of expensive components from places like South Korea, Taiwan, Germany, Japan as well as the United States.It needs to import crude oil from Saudi Arabia to power the trucks and ships that ferry the components and finished goods back and forth.It needs to import advanced industrial equipment to perform many of the intricate manufacturing steps needed to produce hundreds of millions of iOS devices every year.Despite all of the impressive advances the Chinese economy has made over the years, it is still really only capturing a thin layer of value-add of the iPhone, as well as many other common export categories.This shows up in international trade accounting in the large trade deficits that China runs with many of the upstream component and intermediate goods manufacturers. It imports sophisticated capital equipment from places like Japan and Germany to build out its factories. It imports energy and commodities from places like Australia and the Middle East to power its manufacturing operations. It imports the high-value components that make up the innards of the finished products that it assembles.In other words, much of its bilateral trade surplus with the United States is merely passed along to other countries. We can see this in some of the large bilateral trade deficits China has with other countries:Sources: China Statistical Yearbook, MIT Observatory of Economic ComplexityOne quick way to gauge how much pass-through trade surplus China takes on from the United States is to look at Balance of Payments data from its perspective. In 2017, China generated a Current Account surplus of $165 billion, or around 1.4% of GDP. This was down from a peak of $421 billion in 2008 on the eve of the Global Financial Crisis, which represented almost one-tenth of China’s (much-smaller) GDP at the time.The difference between the $336 billion and the $165 billion is a rough approximation of the “pass-through” trade surplus to other countries and $165 billion is a much more accurate reflection of the true economic value flows.(Note: One side takeaway from the chart below is that China is far, far less reliant on a mercantilist, export-centric economic development strategy today compared to a decade ago.)Source: State Administration of Foreign Exchange (中国国际收支平衡表_国家外汇管理局门户网站), TheGlobalEconomy: China Current Account (% of GDP)On top of this, we also need to remember that the United States is not the only trading counter-party that China runs a large trade surplus with. In particular, it runs large trading surpluses with the U.K., India and much of Europe (ex-Germany). In other words, perhaps only 60–70% of its Current Account surplus is actually attributable to the United States.But even the more holistic Current Account metric fails to capture all of the international flows of economic value. This because in many cases, the money flows from U.S.-produced IP never even directly crosses the U.S. border. Value is still captured by Americans but mostly indirectly and spread out over a long period of time. To see why, we need to look into international tax accounting and the Capital/Financial Account portion of Balance of Payments ledger.Economic Trend #3: The Absurdity of International TaxationGlenn Luk's answer to How will the race to 5G dominance play out between Qualcomm and Huawei?In another recent answer, I discuss how Qualcomm built up a massive patent portfolio over the years and monetized it largely by collecting licensing fees from smartphone and network equipment OEMs. Like Apple in the earlier example, much of this IP sits offshore for tax reasons.If the end customer is American, the money flow will show up through the importation of what is typically a physical hardware device, like an iPhone. Because of some of the quirks in BoP accounting I described above, even though most of the iPhone’s IP originates from the U.S., it still ends up contributing to our bilateral trade deficit with China.This absurdity can be seen in an example from an earlier answer[8] that shows how this might work for an iPhone:Things get even more non-sensical when the end sale takes place outside the United States.For tax reasons, the IP is domiciled offshore, in a tax-friendly jurisdiction like Ireland. When Apple sells an iPhone to an end customer in London, the profits are collected offshore. None of the money ever flows back “onshore” to the United States, lest it be subject to something called a “repatriation tax”. (Note: this may change with the new 2017 tax laws but is relevant for all of the data we are looking at here; see Explanatory Note i)As such, even though this is clearly an export of American IP, much of it is not even captured in any of the BoP line items.To be fair, a small portion of it would show up in Line 1.B. “Exports of services”, likely under the “charges for the use of intellectual property” sub-category. This is because there are rules around something called transfer pricing[9] that govern intra-company asset transfers:For example, say Qualcomm engineers in San Diego come up with a new invention and patent it. The company’s tax accountants want the IP to sit in a tax-friendly place like Ireland so it needs to arrange the transfer of IP. It must follow some transfer pricing rules, which means selling the IP at some nominal “cost-plus” markup. It would recognize a nominal amount of onshore U.S. profit, on which it would pay a small amount of tax. From Ireland, Qualcomm can sell the IP globally and pay a much lower tax on profits than it would have if it had sold it from the United States.(Note: I am not an international tax accounting expert and I might be missing some steps and/or jurisdictions but this should be directionally correct based on discussions I’ve had with actual experts.)The net effect is that international sales of this IP do not generate any onshore money flows and, accordingly, are not calculated in the U.S. BoP accounts. But this does not mean that we are missing out on the benefits of the trade. It just shows up in different line items and is spread out over time. To find out how, we now have to learn about the Capital/Financial Account section of the BoP.“Balance of Payments” 102: The Capital/Financial AccountWe’re back in the classroom, students. Kudos to all of you who decided to come back for second semester.I’ve been writing this darn thing so long that I’ve aged quite a bit since we last met:As you might guess from the name, Balance of Payments ultimately needs to … anyone? anyone? … balance.So if you run a large Current Account deficit, the deficit will need to be funded somehow. If you run a large Current Account surplus, you will need to send the surplus capital outside the country. These transactions are captured in the Capital/Financial Account.As we have been running large trade deficits for most of the last three decades, as Warren Buffett likes to say, we have been issuing “claims checks” to our foreign trading partners to pay for all of the extra stuff that they send us[10].These claims checks generally come in two forms: debt and equity. The debt is primarily made up of U.S. government bonds, debt backed by various forms of real estate, and debt issued by our corporations. The equity is made up of publicly traded equity as well as private (non-traded) investment, also known as “direct foreign investment”.Over the years, our foreign trading partners have accumulated quite a large stash of claims checks. But how much exactly?The U.S. Treasury releases monthly data on the market value of traded securities held by foreigners and the number is around $19.0 trillion as of September 30, 2018[11]. This figure is comprised of:$6.6 trillion in U.S. Treasuries and Agency bonds$3.8 trillion in U.S. corporate bonds$8.6 trillion in U.S. equities$19 trillion is a whole lotta skrilla.But this figure needs to be reduced, or netted off, by foreign assets held by Americans of around $11.8 trillion[12], comprised of:$2.9 trillion in government and corporate bonds$8.9 trillion in other securities (e.g. corporate debt, equities)These figures exclude foreign direct investment (FDI) but the good news here (for those of us who are less mathematically inclined) is that outbound FDI stock is almost exactly equal at $6.4 trillion each[13].So, netting everything out, foreigners own about $7.2 trillion more of America than Americans own of the rest of the world. As a sanity check, this number ties (roughly) to the accumulated Current Account deficits that we have generated since 1999 (which was about the time we started to generate large deficits) of $9.3 trillion[14]. (Note: it will not be exact because there are other line items in the Capital/Financial Account like straight-up currency and direct loans, as well as a plug account “statistical discrepancy”).Also, remember all of that cash that never made it onshore because American multi-nationals (“MNCs”) were trying to avoid taxes? This cash (and re-invested foreign profits) — some $2.6 trillion[15] of it sitting in foreign subsidiaries of the MNCs — is part of this $7.2 trillion net figure.If MNCs had been repatriating their overseas profits as it was earned, it would likely reduce our Current Account deficit by at least $150 billion per year. It supports the market/intrinsic valuation of the companies, and the mostly American shareholders of these MNCs benefit from this value, but from an international accounting perspective it does not show up directly.Over the very long run, the benefit will show up in the Balance of Payments accounts, via foreign purchases of equity and securities that have increased in value value over time. But the key point here is that the BoP effect will show up over a long period of time and also be subject to fluctuations in market sentiment (affecting valuation multiples).Phew! That was a lot of math and big numbers. The good news is that our final guest lecturer has arrived!Photo Credit: Sports IllustratedJust kidding, we are are not going to talk about Emily Ratajkowski. I just noticed some of you in the back falling asleep and I needed to get your attention because the next point is an important one.(Note: Yes, I know, that was quite shameless. But before I get inundated with #MeToo hashtags, remember y’all got young Alec Baldwin earlier in the lecture. Not to mention a young-ish Ben Stein.)Economic Trend #4: The Almighty U.S. DollarSo … $7.2 trillion is still a lotta skrilla. As a country, you would rather have a net positive international investment position than a negative one. But America has another trick up its sleeve: Our currency is the global reserve currency.Without getting too much into the details, one of the advantages you get by controlling the global reserve currency is that you end up owning a much more productive pool of foreign assets than foreigners own of you. To illustrate this point, we will make our last reference to Balance of Payments.Here’s the important table repeated from up above. Line 2 is something called “Primary Income”. Most of this line item is made up of investment income earned on bonds (interest income), stocks (dividends) and foreign direct investment (repatriated earnings).Despite the fact that foreigners own over $7 trillion more in American assets than Americans own of theirs, the United States generated $222 billion more Primary Income than it exported in 2017. In other words, the mix of overseas assets that we hold is significantly more productive than the U.S. assets held by foreigners.The main reason for this is that a large portion of the $19.0 trillion in liquid assets held by foreigners is made up of low-yielding U.S. Treasury government bonds. Whereas the majority of liquid foreign assets held by Americans are higher-upside (and often higher-yielding) equities — and even the bonds that they hold typically generate higher yields than U.S. Treasuries. Moreover, American outbound FDI tends to be comprised of more productive business assets while inbound FDI from foreigners includes more passive investments like real estate.It’s not that foreigners like holding low-yielding American assets. It’s that they are effectively forced to because of the U.S. Dollar’s status as the main global reserve currency. As the de facto global store of value, it becomes the standard place to “park” assets. So when countries like China run massive trade surpluses year after year, they are essentially forced to acquire low-yielding U.S. Treasury assets. As long as the U.S. Dollar dominates global trade, we get to set the rules.Having your currency as the dominant reserve currency gives you the world’s Most Amazing Credit Card: One that comes with unlimited credit, low borrowing rates and the general right to “not give a f—” when it comes to monetary policy.Like this, but made out of an Adamantium-Vibranium alloy.It also has no expiration date — provided you remain the dominant reserve currency. And to remain the dominant reserve currency, you need to be willing to take a leadership role in trade, not turn your back on the world. I do very much hope that we are doing our very best to make sure this card is in our wallet for decades to come.The Bottom Line: What Needs to be Fixed and How Do We Fix it?To fix things, we first need to get the facts straight. The problem with our trade policy decision-making today is that we are using the wrong numbers … and this will inevitably lead to the wrong prescription.During the 2016 Presidential Debate, Donald Trump said that America had an “almost $800 billion trade deficit”[16]. After becoming President, he has continued to repeat this $800 billion figure[17] ad nauseum.As I have described above, this number is completely misleading. Our economy is not a goods-based economy, it is a knowledge-based economy and if we account for this, the true deficit is much closer to $300 billion than $800 billion:The other problem is that President Trump appears to be almost singularly focused on China for taking our jobs, attributing “$500 billion” of the trade deficit to them. But again, to ground ourselves with the right facts and reality, we need to look at how other countries stack up:What’s really going on here is that the Anglophone (English-speaking) countries as a group are importing capital (and exporting jobs) to two major economic regions: East Asia and Northern Europe.China is only part of the issue — it makes up less than one-third of the aggregate “East Asia” surplus. Even more importantly, the labor-intensive jobs that we have lost to China are probably not the ones we want. It’s the high value-add, highly paid knowledge worker jobs that we should aspire to and those are more likely found in places like Japan, Germany, South Korea and Taiwan, not China.If we look at things on a per capita basis, the contrast is even more stark. At least from the traditional definition of mercantilism, China barely registers.Note: Data may not sync up exactly with previous table; data was pulled from an older answer[18].If we put all of our trade policy focus on China, we are going to have a tough time solving the real economic realities that we face.Now there may be other strategic and geopolitical reasons to focus on China these days and that might very well be the right course of action. But if that’s the case, let’s be up front with ourselves about call a spade a spade. Moreover, enacting trade policy that leads to us pulling back global trade is probably exactly opposite action we should be taking from a geopolitical perspective.Let’s make decisions based on facts and reality, not falsehoods and blind populism.Anyone Left? Anyone?For the few remaining readers who have made it to the end, I have a special bonus for you. Pop quiz time!! (Chill … they are all true-false questions. Plus you were warned at the beginning of class.)True or False?The modern evolution of our global economy has meant that the goods we trade are less physical and more intangible.Traditional ways of measuring international trade flows like “trade deficits” are having a hard time keeping up and accurately representing modern trade.Using more holistic measures of trade, the U.S. trade imbalance is much smaller than the headline numbers.In particular, the “true” bilateral deficit with China is significantly lower than the headline numbers once you account for “pass-through” surpluses and the crazy things that companies do to avoid paying taxes.Running a manageable deficit is not actually a bad thing, especially if it is part of controlling the world’s dominant reserve currency.It’s important to get smarter on trade so we can avoid enacting stupid trade policy.Alec Baldwin was pretty awesome in Glengarry Glen Ross.The U.S. trade deficit is high in large part because our economy is more advanced and sophisticated than ever.(Answer Key: All TRUE)Class dismissed.Explanatory note[Note i] With the passage of the Tax Cuts and Jobs Act of 2017, changes in the tax system have reduced the disincentive for companies to repatriate taxes back to the United States[19]. While it seems likely that this will change the onshore/offshore cash dynamic, history has shown how the amazing creativity of investment bankers and accountants when it comes to creating new and sophisticated tax structures.Footnotes[1] Glenn Luk's answer to Why is the USA so rich if its trade balance is negative?[2] How Has Federal Revenue Changed Over Time? | Tax Foundation[3] Is the plural of "Rolodex" called "Rolodexes" or "Rolodices"?[4] U.S. Trade Deficit Grew to $566 Billion in 2017, Its Widest Mark in Nine Years[5] Glenn Luk's answer to What is the cause of our trade imbalance with China?[6] Hong Kong - International Trade and Investment Country Facts[7] Triangular trade - Wikipedia[8] Glenn Luk's answer to Do any countries have a trade surplus with China?[9] Transfer pricing - Wikipedia[10] America's Growing Trade Deficit Is Selling The Nation Out From Under Us. Here's A Way To Fix The Problem--And We Need To Do It Now.[11] http://ticdata.treasury.gov/Publish/slt2d.txt[12] http://ticdata.treasury.gov/Publish/slt2f.txt[13] https://fas.org/sgp/crs/misc/RS21118.pdf[14] Balance on current account[15] Apple Leads These Companies With Massive Overseas Cash Repatriation Tax Bills[16] Read the Transcript of the Second Presidential Debate[17] Trump Hates the Trade Deficit. Most Economists Don’t.[18] Glenn Luk's answer to What is the cause of our trade imbalance with China?[19] Evaluating the Changed Incentives for Repatriating Foreign Earnings

Are living standards higher in Australia than the US?Depends upon what you see as a “standard” worth comparing, let alone how you define or measure “living”. Both countries have their pros and cons, of course, and no-one actually lives an “average” life in either case, let alone your “average” Aussie household of 2.6 people.[1] Your personal preferences, experience and judgement will vary, as will your chosen location (which city, town or region?) and overall demographics.And whilst “similar” in many ways, the experience will inevitably be different and very individual.It’s hard to be objective as we all grow up immersed in a local culture that’s hard to shake off. We may say we despise/dislike some aspects of our homeland but we often miss it when we travel, for example. And as a percentage of the population Australians travel abroad far more than US citizens[2].To be slightly more-or-less objective, here are some publicly available comparable measures of “living standards”.The list of countries by GDP (PPP) per capita[3]- 2016 IMF figures: Australia is 17th at $48,899 per capita and USA tops that with 11th at $57,436. The USA has an advantage here but it’s not that far apart and it’s an average (i.e lots of US billionaires to boost the numbers).Yet the list of countries by Gross median household income[4] shows Australia at 4th, just edging out the USA at 6th. This is different from a mean or average, rather it ‘picks the middle’. Essentially the middle class does slightly better in Australia, in gross terms.As a quick aside, both the mean and the median[5] will be equal in a ‘normal distribution’.[6] But life’s not ‘normal’, or even approximately random; it’s influenced and shaped by competing and interacting factors, and when the data is plotted it doesn’t always come out as a nice ‘Bell curve’[7]For example a Poisson distribution[8] may be more appropriately identified when predicting and matching required hourly staffing numbers with the probability distribution of customers calling for technical support. Statisticians are often best equipped to pick the ‘most appropriate’ distribution,[9] and the most informative way to analyse it (rather than politicians, the media or a random person in the street)For income analysis a ‘normal’ or bell-shaped curve usually doesn’t fit historical data either, and the mean (or ‘average’, if you like) will often significantly vary from a median (or ‘middle-of-the-sorted-series’[10]) value. That tells us something about the distribution - generally, that it’s skewedIf the mean and the median are different values, we should ask ‘why?’; basically they may tell different stories about your data and understanding that is important.An earlier median income comparison (from 2013) that more clearly favours Australia over the US in middle class wealth analysis was published by USNews.[11]According to the 2017 Social Progress Index,[12] Australia is 9th overall (down from 4th, by the way).The US is somewhat lower at 18th.According to Mercer’s 2017 list of cities by quality of life,[13]San Francisco is the first US city to appear at 29th, down from 28th.Sydney however remains steady at 10th; other Aussie cities have taken a tumble but still rank above most US cities.[14]In contrast, Melbourne actually tops the Economist Intelligence Unit Global Liveability Ranking[15] and has done so for 7 consecutive years. There are 4 Aussie cities in the top 11, but no US cities make the cut.Monocle magazine’s Quality of Life survey[16] ranks Melbourne (5th) ahead of Sydney (7th), too, with Brisbane 23rd.Again no US city makes the top 25.Australia outranks the US in the OECD Better Life Index,[17] mostly because of lesser inequality in Oz. It’s all of those US billionaires again, contrasted with the many more poor and poorly paid (about 17% of US citizens compared with 12% in Oz).The Credit Suisse Research Institute's Global Wealth Report 2017[18] states that “Switzerland (USD 537,600), Australia (USD 402,600) and the United States (USD 388,600) continue to occupy the first three positions in the ranking of wealth per adult”. Obviously all of those Swiss Bank accounts add up.Still, it’s another win to Australia over the US.That same survey looks at median wealth, too, and reports that “in first place Switzerland (USD 229,000) exceeds that of Australia (USD 195,400), but the difference is narrow”.And the US? “Median wealth of USD 55,900 relegates the United States to 21st place, alongside Austria and Greece.”[19] Again the US suffers statistically because of pronounced inequity (all of those billionaires, dragged down by the poor).Here’s another excellent factual comparison, at indexmundi,[20] There’s also a detailed and very fair analysis of an earlier Credit Suisse Research Institute report at the Guardian.[21]And another, even earlier and broader analysis and comparison (including education and life expectancy) over at News Limited that generally favours Australia.[22]Do we see a pattern emerging at all?Perhaps Australians pay a hefty price for their lifestyles?The data is a bit old (mostly 2011) but the trend is clear that the Australian fiscal debt as a percentage of GDP is about half of the US public debt. And the US debt trajectory is steeper.[23] Current Australian government policy is to increase some taxes (and cut corporate tax a little) and to slow or reverse the climbing debt; the US administration proposes the opposite: a cut to corporate tax coupled with a massive increase in spending.The same website compares the US and Oz cost of living.[24]It’s probably fair to say that the average Aussie has around $500 more in their pockets after tax (per month, 2014 figures[25]) but generally pays more for goods and services.If we look at taxation as a % of GDP, Australia is just below the OECD average at 34.3%, and the US is below that at either 26.4 or 33.4 (pick one!).[26]I suspect that the latter US number includes a higher number of taxes. In any case this is a measure of the relative size of government vs the private sector.If you just look at personal income tax as a % of GDP the gap narrows enormously. A win to the US, if you see some significance to GDP percentages.It’s worth noting that Denmark is way off the scale! Of course the social safety net, education and other social programs are a big driver of that. Remember also that the above is a % of GDP, so if GDP goes up whilst government stays stable, the % falls. (Australia has set a world record - 26 years straight - for consistently growing GDP.)The relative tax burden that falls on individual citizens narrows the gap once more. There’s almost no difference between Oz and the US, even though popular perception may be that the US is a “lower taxing nation”.Ah ha, you say, but what about the GST? Well yes, the US collects goods and services taxes on a lower share of GDP than Australia, but both countries are way below the OECD average (that’s the black column in the chart below).Taxation per capita (OECD figures) is lower in the US than Australia ($14.8K vs $17.1K), but it’s comparable with most developed nations. Given Australia’s larger social safety net, including universal health care, it’s arguably a bargain. (G20 comparison below.)Last but not least is the ‘tax wedge’, which effectively measures the impact of personal taxation on new hires, from the point of view of an employer. It asks the question, how encouraging (or discouraging) is the tax system?Perhaps surprisingly, Australia manages to edge out the US here. So despite a higher average wage and a bigger social safety net, Australia offers more encouragement to employers to hire new staff. So much for the rhetoric.To be fair, it’s not just the tax system that encourages or impedes investment in new workers. The US has less strict workplace regulation and hiring and firing is more “friction-less”, or just plain easier. OTOH Aussie workers have more protection from being fired on a whim, as it were.The main takeaway is that Australia and the US have much in common, however Australia offers arguably more “bang for the buck”.Why is this so?IMHO Australia has inherited more of the British political and bureaucratic inertia, coupled it with an anti-authoritarian streak and retained the common courtesies of patient queuing and easy-going acceptance, whilst also being tough-minded and hard-working. We just make it look like we are enjoying ourselves, irrespective. (Sometimes in a coarse and vulgar way, mind.)Being created a fair bit later in time than the US, and having not had to literally fight for our independence or flee from religious persecution (just other persecution), Australia profited from the very real late 19th Century debate about socialism vs capitalism,[27] before settling on our own Constitution.By sheer necessity the Crown had established from scratch almost all institutions of note and substance, and the socialists were in the ascendant.Marx and his economic philosophy were yet to accrue the negative attachments that came later. Australia could envision a system with a strong social safety net and the taxation to support it without perhaps the widespread popular rebuke we may expect.Together with New Zealand and the Nordic nations, with which much is shared, Australia paved the way with a series of social and democratic reforms, including democratic enfranchisement free of wealth or land ownership, and later free of gender discrimination, too[28](as early as 1895 in South Australia, and 1902 nationally[29]).Remembering that the earlier U.S. Declaration of Independence and its laudable assertion in 1776 that "all men are created equal" didn’t swiftly translate into effective freedom from slavery, or enfranchisement for women. That may have been at least in part the intent, and was it certainly debated as such, but in terms of scope and priority it wasn’t spelled out per se. For instance suffrage for women arrived nationally in the US from 1920[30]and in other respects, as is also the case in Australia, much work remains to be done.Even earlier, by the 1890s, it was recognised that Australia had shrugged off the oh-so-English class system. Too many convicts, too many persecuted Irish agitators, redcoats and free settlers alike who all saw their chance to live a better life than the one they left behind in Old Blighty.[31]By 1901 Frenchman Albert Metin could write in his book Le socialisme sans doctrines: la question agraire et la question ouvrière en Australie et Nouvelle-Zélande that "these countries in which the state has set limits to the right of property, has instituted the eight-hour day, the minimum wage, compulsory arbitration, with many other measures which have given the English antipodean colonies the surname Paradise of Workingmen",[32][33] and with good reason.World leading practices of conciliation and arbitration[34] grew out of the industrially turbulent 1890s, and the struggles of the labour movement itself gave rise both to widespread democratic enfranchisement and the Labor Party itself.[35]It’s a long read but I also recommend New Zealand-born William Pember Reeves’[36] 1902 work, State Experiments in Australia and New Zealand.[37] He paints a vivid picture of the time, the politics and the debates that led to Federation. Or read the Australian Federation Convention debates[38] themselves.In contrast the 13 British Colonies in America[39]prior to Independence (declared in 1776 but fought for until 1783)[40] endured a long period of debate and agitation over States rights issues, many of them concerned with unfair or inequitable tariffs and a widening gap between rich and poor that left an indelible mark on their nascent society.The agitators for liberty profited from British[41] and French pamphleteers and philosophers[42], from which they perhaps seized upon liberty more keenly than the later concept of égalité.But they suffered (and prospered) through endemic slavery far more than the late-arriving Antipodeans, who managed to hide any such thing more thoroughly, often by the deceit of “paid work”.[43]It remains a dark chapter in Australia’s history, but arguably didn’t become as widespread as it may have done. Although for those so exploited, this is cold comfort indeed. In short the British Colonies after 1807 couldn’t legally trade in slaves, so they were more creative in their use (or conscription) of cheap labour.The Abolition of the Slave Trade Act was passed in 1807, [44]and slavery itself was finally outlawed in 1833, applying throughout the the British Empire.[45]Not so in the US. Efforts toward emancipation finally sparked the War of Secession[46] and only with the end of that civil war did slavery formally end, in 1865.[47] By that time the wounds were deep.It many ways it was a matter of timing; the newly independent United States couldn’t avoid the well-entrenched slave trade nor build a social safety net even if they wanted to.Money and economics were at the heart of this inertia. The economics of the southern states had become dependent upon slavery, for example. And whilst earlier efforts were made, it wasn’t until the 16th Amendment[48] was passed, in 1913, that personal income tax was formally and permanently instituted nationally. Even so, in 1913 less than 1 percent of the population paid income taxes at the rate of only 1 percent of net income.[49] To build a comprehensive social support structure without the revenue base just wasn’t feasible.In the Australian case, the Federal government collected income tax from 1915, the colonies themselves kicking it off from 1884, starting with South Australia[50].Apart from all of that, Aussies don’t seem to wave the flag quite like the citizens of the US, and we do our best to mumble disrespectfully through our national anthem, too. This has changed a little in recent years, possibly because of nationalistic conservatives such as former PM John Howard.[51]Unless it’s an international sporting event, flag waving is largely reserved for people who seemingly need reminding where they live; and only on a few national ceremonial days. It’s not a national obsession.And we generally pay decent wages, so tipping is still optional and not excessive.If you like that sort of mix, great.It’s similar to US culture, but US culture has had more time and history with which to split and regionalise, to differentiate. They even have markedly different regional accents of their own. Imagine that.Footnotes[1] Population and households[2] https://www.usnews.com/opinion/blogs/economic-intelligence/2013/08/22/australias-middle-class-wealth-shows-how-far-america-has-fallen[3] List of countries by GDP (PPP) per capita - Wikipedia[4] Median income - Wikipedia[5] Mean - Wikipedia[6] Normal distribution - Wikipedia[7] Gaussian function - Wikipedia[8] Poisson distribution - Wikipedia[9] List of probability distributions - Wikipedia[10] How to Find the Median Value[11] https://www.usnews.com/opinion/blogs/economic-intelligence/2013/08/22/australias-middle-class-wealth-shows-how-far-america-has-fallen[12] 2017 Social Progress Index[13] 2017 Quality of Living Survey[14] Mercer Quality of Living Survey - Wikipedia[15] Global Liveability Ranking - Wikipedia[16] 'Monocle' Magazine Reveals the World's Top 25 Most Liveable Cities for 2017[17] OECD Better Life Index[18] Credit Suisse Publications[19] http://publications.credit-suisse.com/tasks/render/file/index.cfm?fileid=A6E9E182-E39B-0353-6751EB076EF35159[20] United States vs. Australia[21] Australia is rich and on top of the world: is it time to pop the champers?[22] How would your life compare? Australia vs US[23] Australia vs United States: Economy Facts and Stats[24] Australia vs United States: Cost of living Facts and Stats[25] Countries Compared by Cost of living > Average monthly disposable salary > After tax. International Statistics at NationMaster.com[26] List of countries by tax revenue to GDP ratio - Wikipedia[27] Capitalism, Socialism and Communism[28] Women's suffrage - Wikipedia[29] Museum of Australian Democracy at Old Parliament House[30] Women's suffrage in the United States - Wikipedia[31] Blighty - Wikipedia[32] Albert Métin - Wikipedia[33] LE SOCIALISME SANS DOCTRINES.[34] Charles Kingston - Wikipedia[35] Inaugural Annual Hawke Lecture[36] William Pember Reeves - Wikipedia[37] Full text of "State experiments in Australia and New Zealand"[38] Records of the Australasian Federal Conventions of the 1890s[39] Thirteen Colonies - Wikipedia[40] History of the United States (1776–89) - Wikipedia[41] Common Sense (pamphlet) - Wikipedia[42] A people's history of the American revolution - Howard Zinn[43] Robert K. Russell's answer to Which parts of Australia are considered "redneck" areas that are similar to the Deep South of the USA?[44] Slave Trade Act 1807 - Wikipedia[45] Slavery Abolition Act 1833 - Wikipedia[46] American Civil War - Wikipedia[47] Slavery in the United States - Wikipedia[48] Sixteenth Amendment to the United States Constitution - Wikipedia[49] 16th Amendment to the U.S. Constitution: Federal Income Tax (1913)[50] Taxation in Australia - Wikipedia[51] John Howard - Wikipedia

Several different things in this question, let me try to get to all of them.1) The first part of the question: Are there sites that make it easy to compare and contrast PC video graphics cards? Yes, there are! Lots of them!GPUBoss allows you to compare cards side by side and pit two cards against each other for direct comparisons.Video Card (GPU) Benchmark Charts Passmark charts for a huge variety of GPUs that lets you compare several things at once. Also gives baseline scores to a huge number of cards so that you can compare independently from the charts themselves.Review sites like Toms' Hardware will frequently maintain lists like this: Best Graphics Cards For The Money: March 2015 - Best Graphics Cards For The Money, March Updates (The "Best GPU for the money" article is updated monthly with new releases.)But that leads us to 2...2) Why is it so opaque?Well, it's opaque because graphics cards aren't any simpler than CPUs. Benchmarks like Passmark can give you an idea of a synthetic, objective performance number (so can 3DMark Firestrike, Unigen Heaven and many other tools) but they can't tell you if performance in that benchmark will translate to performance in your application of choice. Graphics cards are like cars. Synthetic benchmarks are like a measure of horsepower. Obviously having lots of horsepower can be a good thing for either going fast or pulling lots of weight. But if you want to pull weight, you need a truck and if you want to go fast, you want a sports car. GPUs are like that too. Two cards with very similar scores in a synthetic benchmark may be optimized in different ways for different tasks. That leaves you to seek data about real world performance where again, things like Toms Hardware (or Hexus or Guru 3D etc) come in handy. Many of those review sites will also provide benchmarks for real world tests.And that leads us to 3...3) Your shopping experience.The flat honest truth is that there are exactly zero, count them again, zero international PC manufacturers who will allow you to purchase an off the shelf PC with access to the full range of Nvidia or AMD's GPU offerings. Zero.This leaves you, the consumer, with three options:Buy boutique. Boutique builders like Digital Storm, Maingear, etc. will offer considerably more GPU customization. What they don't do, from a web portal perspective, is educate you the consumer on what you need. They do, however, have highly experienced technical sales staff to guide you through a purchase decision and they're very good at doing so. They've read Tom's hardware so you don't have to. (and they've done their own benchmarking too.) But you have to talk to someone (or at least email them.)Build it yourself. If you want to get the absolutely top reviewed components in your system, you need to build your own. Consulting with experts may be useful, or you can work to become an expert in your own needs for your own build. A little bit of research goes a long way. Quora is not alone in being a place that people come to ask "what should I buy / build to do X" and there are plenty of experts who will render an opinion.Choose your international scale vendor of choice and accept what they give you. It's an exceptionally limited choice, but the side effect of them forcing you into product classes is that you generally get what you need if your needs can be met by their offerings at all, just by buying the right class of product.Boutique builders do tend to offer up more data, but in general, they're also pushing a higher end product. The big thing to remember about why the larger OEMs (Lenovo, Acer, etc) don't pay much attention to GPU is that GPU needs aren't very high for a significant bulk of the market place. Millions of PCs are sold on nothing more than integrated graphics. Tailoring a shopping experience around GPU performance, when it's only needed for a small segment (in relative, not absolute terms) doesn't make a great deal of sense.I hope that helps to provide some context, and as always, I'm available in comments and PMs for any hardware / build advice if you have follow up questions.