drz-400
DP Veteran
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DRZ-400, annual trade deficits are ALWAYS a drag upon their nation’s production, (i.e. their GDP).
Consequentially that drags upon their numbers of jobs and their wage rates, which employees are dependent upon.
USA’s economy is highly sensitive to the purchasing powers of employees and additionally to their immediate dependents and the many commercial and other entities that are in aggregate among, if not the greatest drivers of our economy.
We all benefit from cheaper imported goods but that doesn’t compensate for trade deficits’ net detriment to our nation’s economy.
We cannot expect every person and enterprise to behave altruistically but we can draft our trade policy laws for our aggregate individuals and enterprises immediate and longer-term best interests converge with that of our entire nation’s economy.
Respectfully, Supposn
It does not take GDP down. GDP = Income = Total Expenditure. You can't buy stuff without first having the money. All your proposal would do is lower the purchasing power of our income by driving prices up.
Trade deficits are a demand leakage, and they do take GDP down. If you earn $50,000 and spend $5,000 of that on imports, there is only $45,000 left (max) for domestic demand.
And what does the international participant do with the $5000?
If we have a trade deficit with them, then they are sitting on it.
Nope, its called a balance of payments. Current Account + Capital Account = 0. The trade defecit is matched by investment coming into the country.
That's not real investment, it's just buying U.S. bonds. It doesn't go toward GDP or American businesses. And it's a demand leakage.
It does not take GDP down. GDP = Income = Total Expenditure. You can't buy stuff without first having the money. All your proposal would do is lower the purchasing power of our income by driving prices up.
Buying American bonds is in fact a real investment, however demand leakage isn't a real term.
Then take us through the process by which foreign countries buying American bonds results in real investment in American business.
After that, explain how my choosing a Chinese product over an American product does not result in lower exercised demand for American goods.
First question, because they are literally investing into an American bond, for whatever that bond is being used to raise money.
Second question, if you choose a chinese product over american I'm assuming you mean it is because of price so we will start with that. So if Chinese price is lower than american you buy Chinese. The only way you could supply an equivalent amount of american product in this scenario is by raising the price. What happens to demand when the price goes up... it goes down. What does this mean? We are now poorer because we can now buy less things. Income is unchanged because we are simply shifting our limited resources to build more things that someone else was willing to supply us at a lower price.
But if you understand bond issuance, our government does not need anybody buying its bonds. Greenspan and Bernanke have both said as much - the Fed can buy our bonds. Plus, that money goes to the government, not American industry.
This counts as "investment" in the same sense that a buildup of inventory is put into the "investment" category - it's just some accounting weirdness.
No, income decreases. It is true that we will not be able to buy as much stuff if we buy American (assuming it's more expensive), but everything we spend domestically becomes domestic income. Like I said before, if your income is $50,000 and you spend $5000 of that on imports, that only leaves $45,000 for domestic producers to earn. You, the spender, might get more stuff out of the deal, but our economy as a whole loses. Next year, if nobody makes up for the lost demand, our national income goes down $5000.
The $5000 dollars is used to buy US assets. It is not thrown into an incinerator and burned. No one would ever trade with us if that was the case. US dollars are not currency in China! They can't do anything else with it. The balance of payments always adds up to 0.
Why historically have periods of low gdp growth or recession been characterized by a shrinking current account deficit while periods of high gdp growth been characterized by a widening one? It is because a current account deficit can also be caused by the US economy being stronger relative to its trade partners. This is because a strong economy promotes capital inflows, investment, makes domestic capital more scarce, and makes the dollar stronger. All of this is a positive in the US.
The main rule of economics is scarcity. It is impossible for us alone to make as much stuff as we would if we were also trading with someone else.
... The main rule of economics is scarcity. It is impossible for us alone to make as much stuff as we would if we were also trading with someone else.
As I have said many-a-time, Import Certificates, permitted by GATT Article 12, states clearly that for countries suffering from specific-import challenges said certificates can be established.
GATT? GATT is defunct, and has been for more than two decades.
Whilst GATT was a set of rules agreed upon by nations, the WTO is an institutional body. The WTO expanded its scope from traded goods to include trade within the service sector and intellectual property rights. Although it was designed to serve multilateral agreements, during several rounds of GATT negotiations (particularly the Tokyo Round) plurilateral agreements created selective trading and caused fragmentation among members. WTO arrangements are generally a multilateral agreement settlement mechanism of GATT.
GATT and the World Trade Organization
Excerpt:
Israel is a member of the WTO since 1995 ...
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