Synch said:I can't believe that man has a degree in economics from Harvard, when will he realize trade policy does not dictate trade balance? What a fool.
Trade policy determines how much we trade, trade balance is the different between exports/imports. Trade restrictions will only reduce both, thus decreasing total trade, reducing consumer/producer surplus, and only maintaining current trade balance.Get an image of me (I know you don't know what I look like) getting very wide eyed and gape mouthed as I slowly say: "What?!?"
Our decisions about trade (i.e. our "trade policy") certainly do dictate trade balance, provided that:
1) We have the means to produce something other countries want
2) Other countries produce something we want.
Beyond that, trade policy does indeed dictate trade balance.
synch said:Trade policy determines how much we trade, trade balance is the different between exports/imports.
synch said:Trade restrictions will only reduce both
synch said:thus decreasing total trade, reducing consumer/producer surplus, and only maintaining current trade balance.
Give me an example of a trade policy that purportedly lowers our trade deficit. Tariffs? Quotas? Your pick.Nonsense. We can set trade policy such that it will not reduce both imports and exports. Especially if we convince other countries to sign treaties favorable to such an arrangement. At this point, I would admit, it will take a fair amount of convincing...
The causal link between investment flows, exchange rates, and the balance of trade explains why protectionism cannot cure a trade deficit. In his 1997 book, One World, Ready or Not, Washington journalist William Greider proposes an "emergency tariff" of 10 or 15 percent to reduce the U.S. trade deficit.(23) If Congress were to implement that awful idea, American imports would probably decline as intended. But fewer imports would mean fewer dollars flowing into the international currency markets, raising the value of the dollar relative to other currencies. The stronger dollar would make U.S. exports more expensive for foreign consumers and imports more attractive to Americans. Exports would fall and imports would rise until the trade balance matched the savings and investment balance.
Without a change in aggregate levels of savings and investment, the trade deficit would remain largely unaffected. All the new tariff barriers would accomplish would be to reduce the volume of both imports and exports, leaving Americans poorer by depriving them of additional gains from the specialization that accompanies expanding international trade.
The only possible way to achieve this ceteris paribus(such as not completely overhauling our current tax system such as changing it to a consumption vs income system) would be to abolish trade completely, which would devastate the economy and let our living standards go on free fall.Which means that we can set a policy to not import any more than we export (just as one rather brute-force example).