Trade deficits are ALWAYS detrimental to their nations’ GDPs.

Discussion in 'Economy' started by Supposn, Nov 30, 2011.

  1. Supposn
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    Supposn Senior Member

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    Trade deficits are ALWAYS detrimental to their nations’ GDPs.

    Nations’ entire production of goods and service products contribute to their GDPs but prices of individual products do not always reflect the entire goods and services that supported the production of those products. Also individual product prices certainly do not reflect their productions’ inducement of additional goods or services productions.

    All production contributes to producing nations’ gross domestic product, (GDP). The production is not statistically lost; but to the extent that production costs of globally traded goods are understated, nations’ global trade imbalances’ affects upon their GDPs are not fully attributed to global trade.

    ////////////////////////////////// Further Explanations ///////////////////////
    For example governments often induce producers to establish their factories within their jurisdictions by granting them favorable tax considerations or providing infrastructure that’s particularly favorable to targeted enterprises. Governments and other non–profits often co-operate by favoring enterprises with research, loans of equipment, or access to their expertise. These production supports are of lesser or no cost to the favored enterprises and thus those enterprises products are lesser priced.

    All of a nation’s production, (including production support that’s not reflected within produced products prices), are included within the producing nations’ GDPs. But domestic production support not included within the supported export products are not to that extent attributed as exports’ contributions to the producing nation’s GDP.

    Production of products can support or induce the production of other unrelated products.
    For example increasing the production rate of export goods can increase the factory’s payroll and induce increasing revenues for local beauty parlor service products. This is an additional example of exports additionally increasing the nation’s GDP but the addition is not attributed to the nation’s global trade.

    [We cannot spend the same money twice. That’s why the GDP calculation formulas are reduced by the amount of the nation’s imports. When U.S. purchasers perceiving their own individual benefits chose to purchase imported products their transaction reduces their nations’ GDPs. Trade surpluses increase their nations’ GDPs.]

    Trade surpluses ALWAYS contribute and trade deficits are ALWAYS detrimental to their nations’ GDPs.
    This is baked into the formula defining and calculating GDP; it is not matters of opinion.

    Respectfully, Supposn
     
  2. Supposn
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    Supposn Senior Member

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    Within the discussion topic “Every Day Should Be Buy American”,
    Toro posted this response:

    “A trade deficit can often be a sign of strength, and a trade surplus can be a sign of weakness.

    If two countries trade with one another, and one is growing faster than the other, the faster growing economy can run a trade deficit with the slower economy because it's demand for imports is relatively higher”.

    ///////////////////////////////////////////////

    Toro, don’t confuse cause and effect.
    A nation’s faster economic growth is certainly not due to its increased trade deficit.

    A nation’s domestic markets sales volumes are likely to increase when the nation is enjoying a more robust economy. The converse is likely to occur during unfavorable economic durations.

    In both cases sales within the domestic market were affected by the economy. In both cases the nation’s GDP would be less than otherwise due to any trade deficit that may exist.


    Global trade balance is baked into gross domestic product’s, (GDP’s) calculating formula. Due to a trade surplus, the nation’s GDP is increased and due to a trade deficit it’s decreased more tan otherwise.

    To argue otherwise, would be to argue with the conventional defining GDP calculation formula.

    Respectfully, Supposn
     
  3. likeabird03
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    likeabird03 Active Member

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    Thank you for this. I've become very frustrated trying to explain this very thing to people.
     
  4. expat_panama
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    expat_panama Silver Member

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    Absolutely right, and at the same time trade deficits can get worse while the GDP gets better, and the trade deficit can get better while the GDP gets worse. This is baked into recorded data and historical fact--
    [​IMG]
    --it is not a matter of opinion.

    Left at that makes it sound like a contradiction, but there's more. Namely, the fact that a trade deficit is always equal to a capital surplus, and the components of a capital surplus are also already baked into the formula. So many things in economics that are not a matter of opinion, but we all know that lots of people have decided they don't like trade deficits and they'll simply choose to ignore any facts that contradict their opinions anyway.
     
  5. EdwardBaiamonte
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    EdwardBaiamonte Gold Member

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    Actually if we develop a deficit from, say, buying Japanese cars, that so called deficit is automatically reversed since we buy in dollars that the Japanese must in turn spend in the USA. So, there is no need to worry about deficits. Sorry.

    A liberal will have a marked tendency to worry about trade deficits because he will not be able to understand that a free market eliminates them and because the magical creation of deficit provides a ready excuse for a magical liberal big government solution, in this case to a problem that can't even exist.

    Magical liberalism extended the Depression for 10 years and led to WW2. Its not that people were lazy for 10 years its that magical liberals were stupid for 10 years.
     
  6. likeabird03
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    likeabird03 Active Member

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    Theoretically this might work, but you're wrong. If Japan did turn around and spend all that money, or an equal amount on US goods, we wouldn't be running a multi billion dollar deficit with Japan each month. Most of this excess money is actually used to buy T-Bills to finance our record budget deficits, hardly a good economic model.
     
  7. Supposn
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    Supposn Senior Member

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    ExPat_Panama, you didn’t read or didn’t consider message #2? You’re confusing cause and effect.

    There good reason to expect USA’s trade deficit to increase in response to an improving economy or to decrease when the economy goes south. That is a reasonably logical conclusion which I Suppose is a matter of opinion.

    Regarding the graph you provided, we apparently derive contrary conclusions from the same data (which conforms to the economic model described in message #2).

    Regarding the capitall account, IT IS NOT a factor within the formula for calculating GDP.
    Trade deficits are ALWAYS detrimental to their nations’ GDPs.

    Respectfully, Supposn
     
    Last edited: Nov 30, 2011
  8. likeabird03
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    likeabird03 Active Member

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    That exactly right, he's pointed to a period of time when the economy grew despite the record trade deficit, and grew at a slower pace than it otherwise would have if it weren't for the deficit.
     
    Last edited: Nov 30, 2011
  9. Sundial
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    Trade deficits do not always decrease GDP. They're subtracted out only because otherwise they would misleadingly inflate GDP - make it seem larger than it actually was.

    GDP is calculated by starting with the value all final goods and services that are purchased. Since GDP is a measure of production rather than purchases, things that are purchased here but produced somewhere else have to be subtracted out.

    Suppose there was an island all by itself. The value of everything produced would be equal to the amount of money that was spent on it. (Plus the value of things produced but not sold, but that's a separate issue.)

    Now suppose people from another island came and sold some stuff to them.

    You can't include that stuff in the first island's GDP because it was made on the second island, not the first - GDP is a measure of how much is produced, not how much is sold.

    Suppose the island produced 100 units of stuff in the first period, and 100 units of stuff in a second period - but in the second period also purchase 10 units of stuff from another island.

    Subtracting those "extra" units is just an adjustment to get to the true number. The true number is unaffected by the imports.
     
  10. likeabird03
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    likeabird03 Active Member

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    Yes, and that's what we see happening all the time. We expect GDP to be good because consumer spending rises at say - a 4% rate, but because it made the trade deficit increase by X amt, the GDP growth is less, maybe 2.8%.
     

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