Reply To: Trade deficit


Fundamentally, international trade is no different than domestic trade. The principles of economics transcend political boundaries.

The reason two persons trade with each other is that they both benefit from obtaining something they value more highly. In other words, they recognize a difference in the value of two alternatives and act to gain from this difference. In trade all moveable goods, consumer goods, producer goods (i.e., labor and capital goods), and money move from where they have less value to where they have more value. This process continues until there are no more value differences to exploit. Trade statistics merely account for (but are not the cause of) these movements.

If a government has a policy with respect to international trade it’s typically to help exporters and not importers. It usually does this through protectionism, i.e., high tariffs on competing foreign produced imports or artificial devaluation of the countries currency to stimulate foreign purchases of domestic exports.

I’ve never heard of a government that inflates its money with the intention of stimulating imports, although one could conceive of such a policy. Perhaps one reason governments attempt to stimulate exports and not imports is that net exports (exports minus imports) are part of GDP, i.e., the production of final goods and services in the economy. So to make the economy appear more productive, the government could attempt to stimulate exports or restrict imports.