Global trade’s affects upon GDP.

Discussion in 'Economy' started by Supposn, Feb 22, 2012.

  1. Supposn
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    Supposn Member

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    Global trade’s affects upon GDP.

    [Trade surpluses contribute and trade deficits are detrimental to their nations’ GDPs because the benefits of production are earned by the producing nations and are denied to the importing nation].


    The expenditure method is among the simplest and most common method for calculating gross domestic product, (i.e. GDP). Nations’ entire final expenditures for goods and service products are included within their GDP.

    The total value of the nation’s imports are subtracted from the importing nations’ and added to the producing nations’ GDPs.

    The prices of many specific products do not reflect the entire costs of goods and services that supported the production of those specific products.
    Examples:
    Research and development costs that were provided at lesser cost by universities or other non-profit entities;
    infrastructures local governments contribute and better locate to induce enterprises’ relocating into the local governments’ jurisdictions;
    Enterprises may “tilt” their cost accounting to attribute lesser indirect overhead costs and lower prices to their newer less established products.

    All such goods and service products supporting or contributing to production of globally traded products are accounted for within the producing nations’ GDPs but they cannot be statistically identified and are thus not attributed to foreign trade’s affects upon the GDPs.

    Trade surpluses contribute and trade deficits are detrimental to their nations’ GDPs because the benefits of production are earned by the producing nations and are denied to the importing nation.

    To the extent that a nation’s global trades’ prices are understated, their trade surpluses contributions or trade deficits detriments to their GDPs are similarly understated.

    Respectfully, Supposn
  2. Supposn
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    Supposn Member

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    Investments do and transfers of wealth do not contribute to GDPs.

    I’m continuously responding to contentions that USA’s imports are paid for in U.S. dollars and thus must fully contribute to our GDP.

    When speaking and writing precisely, economists differentiate `between the words “investment” and “transfers of wealth”. Investments are the purchase or dedication of goods or service products for the eventual purpose of producing additional goods or service products of greater value.

    The purchasing initial public offering, (IPO) stocks is investing; the stock issuing enterprise receives some additional capital due to the purchase. Other stock sales transactions provide no additional capital to the stock issuing enterprises.

    Other than the brokerage fees which are a service product that enables liquidating the seller’s stock holdings, the price of other stock sales transactions are transfers of wealth rather than investments or products.

    Transfers of wealth, (the vast proportion of stock and bond sales, deposits and contributions to bank and other financial accounts are not factored into GDPs; investments are factored into GDPs.

    Vast amounts and proportions of revenues directly derived from importing products into the USA are used for transfers of wealth rather than for investments and as such contributes nothing to USA’s GDP. (They do appear in USA’s capital account).

    Respectfully, Supposn
  3. Supposn
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    Supposn Member

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    Exporters’ revenues affects upon the GDPs of the nations they export to.

    If any of such revenues are used to purchase USA products, they contribute to USA’s GDP.

    If those USA products are exported, they are attributed to USA’s foreign trade and reduce USA’s trade deficit.

    If foreign revenues directly derived from importing products into the USA are spent in the USA for USA products remaining within the USA, those revenues should be identified as foreign owned; otherwise USA’s GDP accounts are unable to attribute those foreign revenues as additions to USA’s GDP due to foreign trade.

    Respectfully, Supposn
  4. EdwardBaiamonte
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    EdwardBaiamonte Senior Member

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    of course that idiotic since we buy from China in dollars; so if we buy $100 of stuff from them they have to buy $100 of stuff from us and our GDP then stays the same.
  5. EdwardBaiamonte
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    EdwardBaiamonte Senior Member

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    why are you concerned with what you cant understand?
  6. Supposn
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    Supposn Member

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    Edward Baiamonte, because I suppose you’re a voter. I’m impelled to be concerned as to what you believe to be your understanding.

    Respectfully and concerned, Supposn
    Last edited: Feb 22, 2012
  7. Toro
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    Toro Gold Member

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    This thread is incorrect.
  8. Supposn
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    Supposn Member

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    Toro, your correction is?
    Respectfully, Supposn
  9. Toro
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    Toro Gold Member

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    You misunderstand the national accounts. GDP is an estimate of national income. The expenditure method is a way to measure GDP.

    If you have two economies that are equally in balance, if one economy begins to accelerate, all else being equal, the faster growing economy will experience a trade deficit. That is an effect, not a cause. The trade deficit is an outcome of the accelerating growth, not detrimental to growth.

    Likewise, if two economies are balanced, and people in one economy decide to invest in the other economy, providing jobs and wealth in the other economy, the other economy will experience a trade deficit. That is a mathematical fact. But again, the trade deficit is an outcome, an effect.

    Both are an accounting function. They are not representative of the underlying economics.
    Last edited: Feb 22, 2012
  10. stans
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    Toro

    Could you go into the detailed mechanics to explain how economy 1, that receives money from economy 2, experiences a trade deficit?

    Thanks
  11. Supposn
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    Supposn Member

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    Toro, I do not know what source you’re willing to accept as authoritative on this subject, the gross domestic product, (i.e. the GDP).

    Why don’t you post a link to your choice and we’ll see if we can agree upon what’s a valid explanation for GDP?

    I don’t mind your analogy of incomer in place of production but the remainder of your message is nonsensical rather than mathematical.

    To understand what we are or will be discussing, the description of GDP should be explicit regarding what is and what is not considered as “investments” within the calculation of GDP.

    Respectfully, Supposn
  12. Toro
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    GDP = national income. You learn this the first day of macroeconomics class 101. It's basic stuff.

    Same as my examples.

    Assume the following. We will keep the math simple and focus on Economy A but assume Economy B looks the same.

    Economy A GDP = 100
    Economy A X = 10
    Economy A N = 10
    Economy A NX = 10 - 10 = 0
    Economy A C + I + G = 100.

    Exports and imports are 10% of the economy. Exports are generated by foreign demand, imports by domestic demand.

    Economy A's GDP doubles while Economy B's GDP remains stagnant. When income rises, demand for goods rises, including goods from abroad. Thus, all else being equal, GDP for Economy A will look like this.

    GDP = 200
    X = 10
    N = 20
    NX = 10 - 20 = -10
    C + I + G = 210

    The trade deficit for Economy A is a function of an increase in domestic demand. Economy B will have a trade surplus but that's only because of strength in economy A. The trade balance in both countries are an outcome, an effect of internally generated demand in economy A.

    The trade balance works the same way. Because the trade deficit equals the capital account balance, when someone in Economy B invests in Economy A, the I in Economy A will rise. But because Economy A has a surplus of Economy B's currency, it MUST do something with it. If Economy A decides it doesn't want to invest in Economy B (and thus has a capital account surplus), it MUST use the currency of Economy B to purchase goods from Economy B. Thus, Economy A will run a trade deficit with Economy B because Economy B decided to invest in Economy A.
  13. editec
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    editec Mr. Forgot-it-All

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    We'll very quickly SEE what happens to our economy when(if) a couple TRILLION petrodollars are no longer needed to float the petroleum markets.
  14. EdwardBaiamonte
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    Econ 101 class one day one:

    of course that idiotic since we buy from China in dollars; so if we buy $100 of stuff from them they have to buy $100 of stuff from us and our GDP then stays the same.
  15. Supposn
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    Edward Baiamonte, the short answer to the question as to transfers of wealth directly or indirectly derived from foreign entities funding contributions to USA’s GDP but not being attributed to global trade is NO, that very seldom occurs.

    Refer to the topic “Trade deficits are ALWAYS detrimental to their nations’ GDPs”,
    post #91 posted @ 4:08PM, Febuary 24, 2012.

    Respectfully, Supposn
  16. Middleoftheroad
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    This is called balance of trade, in theory it should always be equal. In reality it never is. Maybe you should have stayed past econ 101.
    There are tons of different factors that account into it, and breaking it down into 1 simple line will never cut it in economics. Yes, China cannot spend American dollars in China. But they can exchange them. It happens in real life. They exchange rate also varies dependant on a countries trade surplus or deficit (amongst other factors, such as debt and printing money).
    Going even further, lets take a real life example. We have a trade deficit with China. What do they do with all that money? Mainly two things. 1) they buy our securities (meaning in the future we are going to owe them money, or whatever they choose to buy with that money) and 2) they buy american companies. What do they do with the profit from these American companies? Well they can't take the cash, since they can't spend it, but they can further take goods out of our society and use it in theirs.
    So please keep saying that trade deficits don't matter. One day, when we all work for the Chinese, I guess you will have no problem with that.
  17. waltky
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    waltky VIP Member Supporting Member

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    Just in time for the election...
    :eusa_eh:
    Nation might reach $16.4 trillion debt limit close to Election Day
    02/23/12 - The $16.4 trillion debt ceiling could be reached just weeks after Election Day, according to a new report.
  18. Supposn
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    Middle-of-the-road, the USA has been experiencing trade deficits of goods every year for well in excess of a half century. This is not simply cases of slight market adjustments.

    Regardless of how China sells, trades or otherwise utilizes their U.S. dollars, regardless of which foreign nation eventually brings those dollars back to the USA, If and when those dollars are used to purchase U.S. products on behalf of a foreign entity, they decrease USA’s trade deficit.

    I suppose it’s usual for U.S. dollars paid for imported goods by U.S. entities to pass through a foreign bank or a bank with foreign associates. At that point the foreign ownership of those dollars are certainly acknowledged.

    After that point if those dollars were used to purchase any U.S. products, that reduced USA’s global trade deficit. I suggest that it’s statistically extremely unlikely for individual transactions to occur otherwise.

    Regardless of the nationality of an enterprise located within the USA, any USA product exported from the USA reduces our trade deficit.
    A North American Toyota assembled in the USA is a USA product to the extent of U.S. labor, materials and other components that supported its production.

    I agree that trade deficits certainly matter; they are ALWAYS detrimental to their nations’’ GDPs.

    Respectfully, Supposn
  19. EdwardBaiamonte
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    Great that you finally discovered that. Yes, they can spend them
    in the USA or exchange them with folks who then must spent them is the USA.
  20. ShackledNation
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    ShackledNation Libertarian

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    The balance of trade is only one side of the larger balance of payments that is so frequently ignored by mainstream economists.

    There is a balance between the capital account and the current account, the latter being called the balance of trade. If there is a deficit in the current account (trade deficit) there will be an equally large surplus in the capital account (investment into the country). And that is the case. Foreign countries invest more money in the US than we invest in them. Unfortunately, much of that investment is in US government bonds.

    For every trade deficit, there is a capital surplus. Don't forget the other side of the equation.

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