Annual trade deficits are always net detrimental to their nation's GDP and drag upon their numbers of jobs. They indicate national use and consumption exceeded the nation's production.
Your assertion is based on what, exactly?
I do not agree with you at all. I don't because the research doesn't support the notion that a current account deficit is deleterious to GDP. ...
1996 -- Trade Deficits:Causes and Consequences
"Trade imbalances have little effect on rates of economic growth once we account for the fundamental determinants of economic growth [; they] are merely a reflection of a country’s international borrowing or lending profile overtime. Just as companies borrow to finance investment and purchases, so do countries. A Country can have a perpetual trade deficit or surplus simply because income payments from investments allow it to finance the country’s desired flow of goods. Far too often, the common wisdom is that large trade deficits signal a fundamentally weak economy, when the empirical evidence suggests that there is no long run relationship between the two. Trade deficits and surpluses are part of the efficient allocation of economic resources and international risk sharing that is critical to the long-run health of the world economy. Neither one, by itself, is a better indicator of long-run economic growth than the other. ...
Your assertion is based on what, exactly? ...
... I don't because the research doesn't support the notion that a current account deficit is deleterious to GDP.In face of all that research, what do Trump and his Trumpkins say? They disagree, while having no real understanding of the current "state of the art" of econometric analysis, let alone the findings thereof. From the 1990s to the present, nothing other than one empirical study after another has confirmed the trade theory that previously wasn't confirmable because there simply wasn't enough computing power to do it. Well, that's not the case anymore.
Correlation between GDP and trade deficits:
There is an inverse correlation [between trade deficits and GDP].:
Without correlation, you cannot have causation.
Kushinator, yes, but you haven't proven "which is the lox and which is the bagel"
USA's domestic markets sell domestic and imported goods. During better times they sell more, during poorer times they sell less. So what?
Kushinator, your posted opinion was the correlation between trade deficits and GDP, (gross domestic production) proves that trade deficits are not detrimental to GDP, and now you post “ There isn't a correlation between trade deficits and output decay”?I don't have to. There isn't a correlation between trade deficits and output decay, even though you continue to bastardize national income accounting to make a claim that is not supported by evidence.
You claimed a trade deficit is always detrimental, and it has been demonstrated that as trade deficits decline, so does real output.
This should end the thread, but such sentiment has been explained before on multiple occasions. You refuse to acknowledge reality. :shrug:
Kushinator, your posted opinion was the correlation between trade deficits and GDP, (gross domestic production) proves that trade deficits are not detrimental to GDP, and now you post “ There isn't a correlation between trade deficits and output decay”?
Net balance of trade's relationship to their nations' GDP are not implied, but explicit within the conventionally accepted formula for calculating a nation's GDP. Surplus balances contribute, and deficit balances reduce the calculated amount of their nations' GDPs.
Any other formula for calculating GDP that would not explicitly include trade balances, would indirectly reflect the nation's net trade balances to reach a valid conclusion of GDP.
Kushinator, those that created the conventional formula for calculatingP had explicitly determined that trade deficits are detrimental to their nations' GDPs.Why haven't you conducted a most basic regression analysis between net exports and GDP growth as a first step, and then publish your results in any one of the threads you create every few months or so pertaining to the same exact subject?
We're not arguing the existence of a statistical relationships between nations' trade balances and their GDPs. We're discussing what's cause and what's effect? There is no evidence of your contention that trade deficit's are beneficiacial or hamless to their nation's domestic production.If what you claim is even possible, there should be an extremely strong correlation between the two variables. ...
Xelor, balance of trade is a direct factor within the expenditure method for calculating at GDP formula. Trade surpluses contribute, and trade deficits reduce the resulting calculated GDP amount. That's in recognition
of trade balances' effects upon their nation's GDP.
The expenditure method is the conventional method employed world-wide. Any other method to calculate GDP, would need to directly or indirectly reflect the nation's balance of trade in a similar fashion.
I direct your attention to these words of your linked reference to “Trade Deficits: Causes and Consequences”, https://www.dallasfed.org/~/media/documents/research/er/1996/er9604b.pdf
“… Certainly, anyone can create a theory about trade deficits and speculate about how they may, or may not, be related to a nation’s economic performance. The paramount question is not whether one can create a theory, but whether it is logically consistent and stands up to empirical observation. …”.
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It is logically inconsistent or the Federal Reserve Bank of Dallas to publish a paper questioning the trade balances effects upon GDP they accept as true and derived from a formula that reflects those trade balances' effects.
Respectfully, Supposn
We find that trade imbalances have little effect on rates of economic growth once we account for the fundamental determinants of economic growth.
... It is an accounting identity (to determine total output), and cannot be used to make deterministic statements pertaining to economic growth. Reason being, all the other variables contribute to each other's total in ways that are non-observable from the 4 inputs alone. ...
By "output", I'm supposing you mean domestic production, (aka GDP)? The formula for calculating the nation's GDP doesn't and is not intended to describe the nation's domestic production volumes?... A formula for determining output doesn't describe the process, nor was it intended to do so. ...
Annual trade deficits are always net detrimental to their nation's GDP and drag upon their numbers of jobs. They indicate national use and consumption exceeded the nation's production.
Respectfully, Supposn
Deficit spending always increases a nations GDP. Does that mean that running massive deficits is good for a nations economy?
First, the term in GDP calculations is net trade deficit... not individual trade deficits with other countries. It's easy to construct a simple 3 way trade model in which each country has a trade deficit with one country, a surplus with the other, and zero overall trade deficits.
Second, the methodology used to compute GDP doesn't suggest the mechanism to control it. Most economists regard trade deficits as the macroeconomic expression of micro economic success. ie if I'm doing well financially then i'm going to buy more stuff. If my neighbors also are doing well then they're going to buy more stuff. As the demand for stuff increases, it will exploit the excess capacity in countries that aren't as successful micro-economically. Trade deficits are the consequence of success, not a cause of failure.
Trade deficits decline as the unemployment rate increases.Mithros, annual trade deficits are always net detrimental to their nation's GDP and drag upon their numbers of jobs. They indicate national use and consumption exceeded the nation's production.
There are many examples Within all levels of government jurisdictions in the USA,there are laws and regulations prohibiting practices or contracts that have been recognized as contrary to their society's best interest. Despite how profitable it may otherwise be, we have laws and regulations within the scopes of finances, public health, environment, traffic, and numerous other considerations, which (for good reason to some extents limit enterprises.
There is no doubt that independent enterprises mutually enter into international trade because they (usually correctly) perceive it to be to their individual advantage.
But annual trade deficits are always net detrimental to their nation's GDP and drag upon their numbers of jobs.
It is not the individual enterprises, but the nation's entire economy that pays the costs due to lesser numbers of jobs. Reducing the nation's production and numbers of jobs does not increase the median wage or promote national prosperity.
I'm among the proponents of the improved version of a trade policy described within Wikipedia's article entitled “Import Certificates”.
Respectfully, Supposn
Trade deficits decline as the unemployment rate increases.
It's probably worth reconsidering your position slightly as that relationship is antithetical to your proposition.
Mithros, we agree that a relationship exists. I'm among those that logically conclude annual trade deficits indicate the nation has used and consumed more products than it produced. Why would you believe otherwise?
We're discussing which is the cause and which is the effect.
Respectfully, Supposn
Mithros, both imported and domestic products are sold in the domestic marketplaces and sales volumes rise and fall together with the rise and fall of the nation's GDP. I suppose sales of different types of items increase or decrease at differing rates; the sales volume ratio's between the same type of domestic and imported product types differ, for different types of products; it wouldn't surprise me if for individual types of products, the proportions of increased or decreased sales differed between domestic and imported products.Deficit spending always increases a nations GDP. Does that mean that running massive deficits is good for a nations economy?
First, the term in GDP calculations is net trade deficit... not individual trade deficits with other countries. It's easy to construct a simple 3 way trade model in which each country has a trade deficit with one country, a surplus with the other, and zero overall trade deficits.
Second, the methodology used to compute GDP doesn't suggest the mechanism to control it. Most economists regard trade deficits as the macroeconomic expression of micro economic success. ie if I'm doing well financially then i'm going to buy more stuff. If my neighbors also are doing well then they're going to buy more stuff. As the demand for stuff increases, it will exploit the excess capacity in countries that aren't as successful micro-economically. Trade deficits are the consequence of success, not a cause of failure.
Mithros, both imported and domestic products are sold in the domestic marketplaces and sales volumes rise and fall together with the rise and fall of the nation's GDP. I suppose sales of different types of items increase or decrease at differing rates; the sales volume ratio's between the same type of domestic and imported product types differ, for different types of products; it wouldn't surprise me if for individual types of products, the proportions of increased or decreased sales differed between domestic and imported products.
It's logical to suppose that both imported and domestic product sales increase or decrease with the GDP. I don't see how you can derive anything more than that from from the fact that imports increase when the nation's domestic markets' sales increase, and they're reduced when the nation's domestic markets' sales decrease?
The eventual purchasers of a nation's exports are foreign purchasers. Thus, the expenditure formula adds export purchases to all domestic purchases for the calculation of the final purchases of domestic produced products.
The eventual purchasers of imports are domestic purchasers. Thus, the expenditure formula subtracts import purchases from all domestic purchases, (due to those products not having been domestically produced), to finally calculate purchases of domestic produced products.
[A nation's net positive annual balance of trade, (i.e. trade surplus) contributes, or a nation's net negative annual balance of trade, (i.e. trade deficit) reduces the nations calculated gross domestic production, (i.e. GDP)].
This expenditure formula is the conventionally accepted formula world-wide. It's the basis of GDP mentioned throughout our entire nation.
Any other formula for calculating GDP would be required to directly or indirectly reflect net balance of international trade's effect upon the nation's total productions.
Respectfully, Supposn
Mithros,we're not discussing the nation trade balance with any particular nation or groups of nations, but rather the nation's net balance of trade among all of the world's nations.
Annual trade deficits are always net detrimental to their nation's GDP and drag upon their numbers of jobs. They indicate national use and consumption exceeded the nation's production.
There are many examples Within all levels of government jurisdictions in the USA,there are laws and regulations prohibiting practices or contracts that have been recognized as contrary to their society's best interest. Despite how profitable it may otherwise be, we have laws and regulations within the scopes of finances, public health, environment, traffic, and numerous other considerations, which (for good reason to some extents limit enterprises.
There is no doubt that independent enterprises mutually enter into international trade because they (usually correctly) perceive it to be to their individual advantage.
But annual trade deficits are always net detrimental to their nation's GDP and drag upon their numbers of jobs.
It is not the individual enterprises, but the nation's entire economy that pays the costs due to lesser numbers of jobs. Reducing the nation's production and numbers of jobs does not increase the median wage or promote national prosperity.
I'm among the proponents of the improved version of a trade policy described within Wikipedia's article entitled “Import Certificates”.
Respectfully, Supposn
We find that trade imbalances have little effect on rates of economic growth once we account for the fundamental determinants of economic growth.
Mithros, yes, they're measurable. But which is the cause and which is the effect?Forget theory, these are measurable things. The trade deficit decreased in the two recessions and one near recession in 16. ...
Annual trade deficits are always net detrimental to their nation's GDP and drag upon their numbers of jobs. They indicate national use and consumption exceeded the nation's production.
Respectfully, Supposn
Mithros, yes, they're measurable. But which is the cause and which is the effect?
Balance of trade within the conventional and accepted formula for calculating the domestic production increases the GDP for a positive balance of trade, (i.e. a trade surplus), and reduces GDP for a negative, (i.e. a trade deficit).
Your contending that we should disregard theory. The statistical amount of gross domestic product is meaningless and doesn't really describe our economy?
O.K.; forget about theory. Our assessing of a nations production is all wrong, or the nation's domestic production is not relative to its economy? Do you contend that if we produce less, it will improve our economy?
We're discussing cause and effect. You cannot refute the logic of the GDP calculation formula unless you're also refuting the validity of GDP as measure of the nation's production or that a nation's production is unrelated to the condition of a nation's economy?
That's your quandary. Respectfully, Supposn
JohnfrmClevelan, a nation's annual international trade deficit indicates the nation used or consumed more products than it produced. That's analogous to suggesting a person heat their home by burning negotiable securities or using Rembrants as shotgun targets. They may be sufficiently wealthy to do so, but it's certainly not sensible.I understand where you're coming from, Supposn. And I agree in part.
Yes, trade deficits are a subtraction from GDP. They are also a demand leakage, just like domestic saving (since trade deficits are basically dollar savings by foreign parties). In and of itself, a trade deficit is lost demand, and lost demand will lead to recession and unemployment if it is not made up for with other demand injections (like deficit spending and increased credit).
But, if that demand gap is closed with deficit spending and/or increased credit, then aggregate demand, and unemployment, should not be affected (in a net sense).
Also, you need to consider what our GDP would be without foreign trade. Maybe we have a $17 trillion economy with foreign trade and a trade deficit, but only a $15 trillion economy without foreign trade. In the second scenario, the demand leakage from the trade deficit is gone, but are we better off?
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