Chapter 9 Trade deficits and jobs: economic magic
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Chapter 9 examines the relationship between domestic employment and international trade and investments. It explains that imports do not, in themselves, decrease GDP. The chapter reviews several scholarly studies on the effects on domestic employment from US trade with China. They suggest that as many as three or four million jobs have been lost in recent decades. The chapter also looks at data and scholarly studies dealing with foreign investments in the USA. First it investigates jobs from foreign direct investments here. Then it presents data on foreign ownership of US financial assets, and explains how and why this helps to finance economic growth and generate employment. Perhaps most importantly, the chapter makes a first attempt to get a rough idea about the jobs created in the USA from the net capital inflow that matches our current account deficits. It suggests that this could significantly (or completely) wipe out any jobs lost directly from excessive imports. Finally, the chapter considers two reasons for the chronic US trade deficits, and makes a first attempt at reconciling the microeconomic and the macroeconomic approaches.

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