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Trade balance's economic importance.


VIP Member
Jul 26, 2009
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DanielPalos, you're referring to the fact that USA's imports and our trade deficits volumes are not of great proportion relative to our annual gross domestic products, (GDPs). But the amounts of nations' net trade balances effects upon their GDPs to some extents understate, (never overstate) their ACTUAL effects upon their nation's domestic production which is reflected by the GDP amount.

But annual trade deficits, are ALWAYS net detrimental to their nation's GDP and due to lesser domestic production, they do drag upon their nation's numbers of jobs.

That's the short answer. Respectfully, Supposn


Trade balance's economic importance.

Annual trade deficits indicate the nation has consumed more products than it has produced. That occurs when imports have “crowded out” the nation's domestic products from the marketplaces. The amount of a nation's net trade balance can only account for the prices of globally traded products effects upon their nations' GDP, but the products' prices do not reflect all of the commercial activity their production has generated.

There are enterprises in industries that we would suppose our unrelated, but they generate commercial activity between them. (e.g. a coffee shop or a pizza parlor near a producer of goods, or a cartoonist that that provides content for that producer's in-house posters or company bulletins are two of many examples. All production supporting or other commercial activity induced by production, are not reflected within the prices of those products. Of course all domestic commercial production activity contributes to their nation's GDP but if it's not reflected within the prices of globally traded products, we cannot account for the ALL of global trades' net effects upon domestic production due to the nation's net balance of international trade; but it's always to a greater extent than the net balance itself.

Governments often locate or modify or build public infrastructures more favorable to their jurisdictions' larger producers. Similarly, professional well-qualified advice, opinions, research, and development studies are some examples of production supporting goods and services that may be provided by governments, universities, and other organizations on much lesser than market or at no cost. They mutually benefit from promoting their national or local economies.

These are costs that contribute to their nations' domestic production, but are not fully paid for by the favored producers, and are not reflected in those producers' prices. To the extent that prices of globally traded goods are understated, they understate international trades' effects upon their nation's domestic production.


Economies of scale are more conspicuous in manufacturing, but they occur to some extent in almost all industries.

The lesser cost per unit of production is less available to U.S. steel producers because they have a smaller potential home market of USA enterprises purchasing steel. USA has lesser steel purchasers due to lower-priced imports made with steel.

Foreign low-wage producers of cheaper steel sell to customers both within and beyond their nation's borders. Thus, due to economies of scale, they further reduce the per unit costs of their cheaper priced steel.

[This is the reason that levying tariffs on steel, but not on products containing steel is illogical. We're increasing costs to USA purchasers of steel while their products must still compete with foreign imports. Thus, we're reducing the competitive position of USA steel purchasers and contributing to those enterprises' demise.

I also believe that it's illogical to discriminate among nations we import from. I believe in the concept of most favored nation. We should treat imports from all nations in an equitable manner and we should (if possible), retaliate against any nation that treats USA products with less favor than the products they import from any other nation. We should do the same when dealing with a pact of nations such as the European Common Market.]

Economies of scale indirectly contribute to the producing nations GDP by enabling them to increase their production and/or the quality of their production at lesser cost.


We know that an enterprise's additional commercial activity can “resonate” with other seemingly less related enterprises and consequentially increase their nation's domestic production. An enterprise's production for export can, and often is such an additional commercial activity; we know international trade balances usually understate their nations net balances effects upon their nation's annual domestic production; We know that trade surplus nations' domestic productions are increased, and trade deficit nations' productions are reduced due to their annual net balances of trade; We know domestic production supports domestic employment.

Beyond the economic benefits of increasing their nations commercial activity and numbers of jobs, increasing domestic production often provides social, technical, and military benefits to their nation.

By producing, we gain familiarity, practice, and knowledge of the tools and materials we handle. So much of our economies' progress was due to research and development induced by USA's defense purchases. If our military has need for something fast, will it be delayed because a foreign government doesn't agree with our then current policy? What of military security for foreign produced equipment?

Respectfully, Supposn


Diamond Member
May 3, 2011
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But annual trade deficits, are ALWAYS net detrimental to their nation's GDP and due to lesser domestic production, they do drag upon their nation's numbers of jobs.


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