Reply To: US-China Trade Relations


There are two ways to interpret the claim that imports are necessary for exports.

(1) When you include money as a good, then it must be true in any trade that the goods “exported” (i.e., given up) are the basis for the goods “imported” (i.e., acquired). This is even true of an exchange of one money for another. So if the Chinese sell their money to buy our money there is still a one-to-one correspondence between exports and imports.

(1) If one divides things into categories (namely: goods & services; money; and capital funding) then the exports of goods and services do not have to equal the imports of goods and services even though the overall movement of everything in all three categories must still balance.

In a market economy, the composition of the balance of trade is determined by people’s preferences. If Americans prefer Chinese goods over Chinese money or Chinese investments and Chinese prefer American money and investments over American goods, then American will have a merchandise trade deficit with the Chinese which is balanced by a capital account surplus. We buy more Chinese goods than they buy American goods and they buy more American money, assets and claims to assets than we buy Chinese money, assets, and claims to assets.