Karthik Sankaran argues that American healthcare costs, at around 5% more of GDP compared to other developed countries, may be responsible for driving the trade deficit US has. He argues that having a massive non-tradeable sector in the overall economy raises the real effective exchange rate, thereby making imports cheaper and exports more expensive. Furthermore, rent-seeking by health insurance companies through high insurance costs, which also pushes healthcare costs higher, may also contribute to boosting the value of the USD. The author’s proposal for solving these problems is a VAT that delivers universal coverage at 12% of GDP.
People are going to bring up [this article](https://randomcriticalanalysis.com/why-conventional-wisdom-on-health-care-is-wrong-a-primer/) here showing why American healthcare costs are normal relative to income and that healthcare outcomes are similar to other countries, but that’s precisely the point; If higher spending on non-tradeables is inevitably the result of higher income per capita, then a trade deficit will be encouraged nonetheless. In such cases, US should worry less about a trade deficit and focus more on making the non-tradeables sector more efficient, or simply let the trade balance be.
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Karthik Sankaran argues that American healthcare costs, at around 5% more of GDP compared to other developed countries, may be responsible for driving the trade deficit US has. He argues that having a massive non-tradeable sector in the overall economy raises the real effective exchange rate, thereby making imports cheaper and exports more expensive. Furthermore, rent-seeking by health insurance companies through high insurance costs, which also pushes healthcare costs higher, may also contribute to boosting the value of the USD. The author’s proposal for solving these problems is a VAT that delivers universal coverage at 12% of GDP.
People are going to bring up [this article](https://randomcriticalanalysis.com/why-conventional-wisdom-on-health-care-is-wrong-a-primer/) here showing why American healthcare costs are normal relative to income and that healthcare outcomes are similar to other countries, but that’s precisely the point; If higher spending on non-tradeables is inevitably the result of higher income per capita, then a trade deficit will be encouraged nonetheless. In such cases, US should worry less about a trade deficit and focus more on making the non-tradeables sector more efficient, or simply let the trade balance be.
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