Thread: Trade deficits are ALWAYS detrimental to their nations’ GDPs.

Reiver, refer to Message #7.

Originally Posted by Supposn

Reiver, refer to Message #7.

Your position is based on the premise that trade has no effect on consumption, investment or government expenditure. That is so ludicrous that I'm not surprised you're struggling to reply!

Originally Posted by Supposn

Liberalis, the capital account and current account are mutually independent statistics. One does not govern or directly affect the other. The two totals are added together and their sum is the balance of payments. The two parts determine the sum. The sum does not determine the parts.

You are not correct. The balance of payments always nets out to zero. That is how it works.

A positive capital account indicates the nation is borrowing money or selling off its assets.
A negative capital account indicates the nation is lending or purchasing assets.

You are ignoring foreign direct investment.

Increase or decrease of the trade deficit do not directly provide or cause increases or decreases of investments into USA’s domestic enterprises. Trade deficits are NOT balanced by capital account increases. Trade deficits are detrimental to their nations’ GDPs.

You do not understand the balance of payments. The capital and current accounts will always roughly balance out to 0. In 2004, the US had a trade deficit of 617 billion dollars, but a capital account surplus of 668 billion dollars. You cannot ignore all the goods produced with that capital account surplus.

You correctly wrote imports do not (in themselves) decrease their nations’ GDPs.
Additionally exports do not (in themselves) increase their nations’ GDPs.
You inadvertently omitted the term “(X – M)”, (i.e. balance of global trade) within the formula you provided.

There was no need to include the term, obviously I know the GDP formula.

When the nation’s balance of global trade is negative, it’s a reduction from the nation’s GDP. The values of global trade goods are not overstated but to some extent are understated. Any production support not fully paid for by global products producers are not reflected within those products prices. It is not unusual for non-profit entities such as governments or universities to provide such support freely or at greatly reduced prices. The true value of these production supports are reflected within the producing nations’ GDPs but they are not identified or attributed to global trade.

[Excerpted from http://en.wikipedia.org/wiki/Gdp ;
GDP = private consumption + gross investment
+ government spending + (exports − imports),
or
GDP = C + I + G + (X – M) ].

Respectfully, Supposn

When the nation has a trade deficit of $30 billion, C also increases by $30 billion. There is no loss to GDP. You wrongly assume that without imports production would be just as efficient if not more so to meet the demand of that $30 billion. But that defies logic, for the whole reason people import is because goods cannot be produced as efficiently and in the same quantities at home without foregoing too many other resources.

The easiest way to debunk your argument is to look at reality. Countries with high trade deficits can have massive economic growth, and countries with high surpluses can have very low growth.

Originally Posted by Liberalis

I obviously I know the GDP formula...When the nation has a trade deficit of $30 billion, C also increases by $30 billion. There is no loss to GDP.

This is utter nonsense! If that was the case the formula would ignore the trade deficit and just use C. You clearly do not know the GDP formula

Originally Posted by Supposn

Reiver, trade deficits detriment to their nations’ GDPs are directly baked into the expenditure formula for calculating GDP. They are indirectly factored into all other formulas that have been accepted and used by communities of economists and statisticians throughout the world. That’s a fact rather than my opinion.

You’re arguing against the formulas that support and define GDP?

Trade deficits are immediately detrimental to their GDPs.
Medium term trade deficits are detrimental to their GDPs over the medium term.
Long term trade deficits are detrimental to their GDPs over the long term.

Respectfully, Supposn

Reiver and liberlis, nations’ net global trade of goods and service products, (i.e. nations’ trade surpluses or deficits) are factor of nations’ GDPs.
(There are no transfers of wealth within nations’ trade balances).
Nations’ trade balances are components of and not equal to their current accounts.
[Additionally the current accounts include some transfers of wealth such as their governments’ net international incomes, gifts or governments’ foreign aid. Current accounts themselves are not factored into nations’ GDPs].

Nations’ trade balances are NOT equal to their capital accounts.
Nations’ capital accounts are composed of net asset or wealth transfers or exchanges that are not included within current accounts.
Nations’ trade balances are NOT equal to their capital accounts. Capital accounts are not factored into nations’ GDPs.

Trade deficits are ALWAYS immediate detriments to their nation’s GDPs.

Respectfully, Supposn

Originally Posted by Supposn

Trade deficits are ALWAYS immediate detriments to their nation’s GDPs.

This is just repetition of error (although to be fair the other fellow has also given some very silly statements). We have no means of using national income accounting to evaluate trade effects on economic well-being. All inputs are affected by trade.

Now there are very specific cases where we can refer to deficits with 'worry'. Britain's recent trade performance, for example, is a concern (with growth projections certainly suffering). However, this is only a worry because it shows that- whilst domestic demand is stagnant- British firms aren't able to utilise overseas activity to somehow make up the shortfall. We can therefore use the trade figures to highlight the 'double dip recession', exacerbated by austerity, is an on-going problem.

But when can we make more general utilisation of the national income accounting? You've already been told several times. It can only be used to understand the determinants of a trade imbalance; i.e. we can re-arrange the expression to show that, rather than risking the instabilities from dollar devaluation, long term repeated trade deficits reflect low savings rates.

Originally Posted by Reiver

Your position is based on the premise that trade has no effect on consumption, investment or government expenditure. That is so ludicrous that I'm not surprised you're struggling to reply!

Reiver, within this discussion topic I argue trade deficits are ALWAYS immediately detrimental to their nation’s GDPs. I contend that’s a fact.
You’re contending trade deficits affects upon other factors of GDP, (i.e. investment and/or government and non government expenditures) indirectly increase GDP more than otherwise and there’s a net economic advantage due to the nation’s trade deficit?

Those are opinions worthy of discussion and argument. Is that the case?

Respectfully, Supposn

Originally Posted by Supposn

Reiver, within this discussion topic I argue trade deficits are ALWAYS immediately detrimental to their nation’s GDPs. I contend that’s a fact.

You may have convinced yourself that its a fact. It is, however, just a silly error.

You’re contending trade deficits affects upon other factors of GDP, (i.e. investment and/or government and non government expenditures) indirectly increase GDP more than otherwise and there’s a net economic advantage due to the nation’s trade deficit?

I'm stating the obvious: you're abusing the national income accounting. I also gave you detail to show just how silly your claims really are: using specialisation according to comparative advantage as a means to show how consumption is itself a variable (i.e. trade allows it to increase such that consumption can be outside the production possibility frontier)

Those are opinions worthy of discussion and argument. Is that the case?

There aren't 'opinions' here. There is simply validity and error. You stick diligently to the latter

Originally Posted by Supposn

Reiver and liberlis, nations’ net global trade of goods and service products, (i.e. nations’ trade surpluses or deficits) are factor of nations’ GDPs.
(There are no transfers of wealth within nations’ trade balances).
Nations’ trade balances are components of and not equal to their current accounts.
[Additionally the current accounts include some transfers of wealth such as their governments’ net international incomes, gifts or governments’ foreign aid. Current accounts themselves are not factored into nations’ GDPs].

Nations’ trade balances are NOT equal to their capital accounts.
Nations’ capital accounts are composed of net asset or wealth transfers or exchanges that are not included within current accounts.
Nations’ trade balances are NOT equal to their capital accounts. Capital accounts are not factored into nations’ GDPs.

Trade deficits are ALWAYS immediate detriments to their nation’s GDPs.

Respectfully, Supposn

You keep repeating the same argument...but its not a response to the counterarguments.

Here is the formula for GDP:

GDP = C + I + G + (X - M)

If imports increase by $100 billion, GDP is not decreased by $100 billion. GDP stays the same. How can this be? It is true that $100 billion of imports will subtract $100 billion from the final GDP. But GDP is at the same time increased by $100 billion because there is now $100 billion more in consumption (C increases by $100 billion). The two cancel each other out, and you get 0.

The only way you can say GDP will be decreased is if you assume importing goods makes an economy less efficient in its production. This is absurd, because imports allow for more resources to enter sectors an economy is more productive in.

Respectfully, you just don't seem to grasp this.

Originally Posted by Liberalis

If imports increase by $100 billion, GDP is not decreased by $100 billion. GDP stays the same. How can this be? It is true that $100 billion of imports will subtract $100 billion from the final GDP. But GDP is at the same time increased by $100 billion because there is now $100 billion more in consumption (C increases by $100 billion). The two cancel each other out, and you get 0.

This is utter drivel! Its purely an accounting identity. There is no way of using it to understand the impact of any level of imports. We certainly cannot say "the two cancel each other out". Its a correction to expenditures, allowing us to appreciate that not all contribute to domestic product.