Balance of trade

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The trade balance , the commercial balance , or net exports (sometimes denoted as NX ), is the difference between the export monetary value and import of a country for a certain period. Sometimes differences are made between the trade balance for goods versus one for services. "Trade balance" can be a misleading term as trading measures export and import flows during a certain period of time, rather than export and import balances at a given time point. Also, the trade balance does not mean that exports and imports are "balanced" with each other or whatever.

If a country exports a value greater than import, it has a trade surplus or a positive balance , and vice versa, if a country imports a value greater than exports, it has a trade deficit or a negative balance. The notion that the bilateral trade deficit is bad inside and from themselves is strongly rejected by trade experts and economists.

Video Balance of trade

Description

The trade balance forms part of the current account, which includes other transactions such as revenues from international net investment positions as well as international assistance. If the current account is surplus, the net international net asset position of the country increases simultaneously. Equally, the deficit reduces the position of net international assets.

The trade balance is identical to the difference between the output of a country and its domestic demand (the difference between what a country produces and how much goods is purchased from abroad, this does not include money being spent on foreign stocks, nor is there any factor in the concept of importing goods to be produced for the domestic market).

Measuring trade balances can be a problem because of problems with recording and data collection. As an illustration of this problem, when official data for all countries of the world are added, exports exceed imports by almost 1%; it seems the world is running a positive trade balance with itself. This can not be true, because all transactions involve the same credit or debit in the account of each country. Non-compliance is widely believed to be explained by transactions intended to launder money or avoid taxes, smuggling and other visibility issues. Especially for developing countries, transaction statistics tend to be inaccurate.

Factors that may affect trade balance include:

• Production costs (land, labor, capital, taxes, incentives, etc.) in the export economy vis-ÃÆ'-vis in the importing economy;
• Cost and availability of raw materials, intermediate goods, and other inputs;
• Currency exchange rate movements;
• Multilateral, bilateral and unilateral taxes or trade restrictions;
• Non-tariff barriers such as environmental, health or safety standards;
• Availability of adequate foreign currency to pay imports; and
• The price of home-produced goods (affected by the supply response)

In addition, the trade balance tends to differ across business cycles. In export-led growth (such as oil and industrial goods), the trade balance will shift toward exports during economic expansion. However, with domestic demand leading growth (as in the United States and Australia) the trade balance will shift toward imports at the same stage in the business cycle.

The trade monetary balance differs from the physical balance of trade (expressed in the amount of raw material, also known as the Total Material Consumption). Developed countries usually import a lot of raw materials from developing countries. Typically, these imported materials are converted into finished products, and may be exported after adding value. Financial trade balance statistics hide material flow. Most developed countries have large physical trade deficits, because they consume more raw materials than they produce. Many civil society organizations claiming this imbalance are predatory and campaigning for the payment of ecological debt.

Maps Balance of trade

Historical examples

Many early modern European countries adopted mercantilism policies, which theorize that trade surpluses benefit a country, among other elements such as colonialism and trade barriers with other countries and their colonies. (Bullionism is an early philosophy that supports mercantilism.)

The practices and misuse of mercantilism led the natural resources and crops of North American Britain to be exported in exchange for the finished goods of England, a factor that led to the American Revolution. The preliminary statements appear on the English Commonwealth Wealth 1549: "We must always keep in mind that we do not buy more from strangers than we sell them, because once we have to impoverish ourselves and enrich them. "Similarly, systematic and coherent explanations of the trade balance are publicly announced through 1630" British treasures by Thomas Mun by foreign trade, or, the balance of our foreign trade is the rule of our treasure "

Since the mid-1980s, the United States has an increasing deficit in tradable goods, especially with Asian countries (China and Japan) which now hold large amounts of US debt that largely fund consumption. The US has a trade surplus with countries like Australia. The problem of trade deficit can be tricky. Trade deficits resulting in tradable goods such as manufactured goods or software may affect domestic work to a different level than the trade deficit in raw materials.

Economies with savings surpluses, such as Japan and Germany, typically run a trade surplus. China, a high-growth economy, tends to run a trade surplus. Higher savings rates generally correspond to trade surpluses. Accordingly, the US with lower deposit rates is likely to experience a high trade deficit, especially with Asian countries.

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Views about the economic impact

The notion that the bilateral trade deficit is bad inside and from themselves is strongly rejected by trade experts and economists. According to the IMF trade deficit can cause balance of payments problems, which may affect the shortage of foreign exchange and harm the state. On the other hand, Joseph Stiglitz points out that the surplus-issuing nations are issuing "negative externalities" to their trading partners, and pose a threat to global prosperity, far more than those with deficits. Ben Bernanke argues that "the continuous imbalance in the eurozone is... unhealthy, because they cause financial imbalances as well as unbalanced growth.The fact that Germany sells far more than buying diversion requests from its neighbors (as well from other countries in worldwide), reducing output and jobs outside of Germany. "

Some countries consider the trade balance as an important factor: Some say China pursues mercantilist economic policy. Russia pursues a policy based on protectionism, which he says international trade is not a "win-win" game but a zero-sum game: surplus nations become richer by sacrificing deficit countries.

Classic Theory

Adam Smith on the trade balance

Adam Smith

"In the previous section of this chapter I have attempted to demonstrate, even to the principles of commercial systems, how unnecessary to put a tremendous restraint on the import of goods from countries whose trade balance should be harmful. However, nothing more does not make sense from the whole doctrine of this trade balance, on which not only these restrictions, but almost all other trade rules are established.While the two places trade with each other, this [does not make sense], the doctrine presupposes that, if the equilibrium is balanced , neither of them loses or makes a profit, but if it rests on any level to one side, that one of them loses and the other gain is proportional to its decline from the right equilibrium. "(Smith, 1776, book IV, chapter Iii, part ii)

Keynesian Theory

In the last few years of his life, John Maynard Keynes has been preoccupied with the problem of equilibrium in international trade. He was the leader of the British delegation to the United Nations Monetary and Financial Conference in 1944 establishing the Bretton Woods international currency management system. He is the lead author of a proposal - called the Keynes Plan - for the International Clearing Union. The two governing principles of the plan are that the settlement of balances must be solved by 'creating' additional 'international money', and that the debtor and creditor must be treated almost equally as a disturbance of equilibrium. But in the event, the plan was rejected, in part because "American Opinion is naturally reluctant to accept the principle of equality of treatment so the novel is in debtor-creditor relations".

This new system is not based on free trade (liberalization of foreign trade) but rather on international trade arrangements, to eliminate trade imbalances: countries with surpluses will have strong incentives to get rid of it, and in doing so they will automatically erase the state deficit -other countries. He proposes a global bank that will issue its own currency - a bancor - which can be exchanged with the national currency at a fixed exchange rate and will be an inter-state account unit, meaning it will be used to measure the trade deficit or trade of a country. advantages. Each country will have an overdraft facility in its bancor account at the International Clearing Union. He pointed out that surpluses cause weak global aggregate demand - surplus-issuing nations issuing "negative externalities" to trading partners, and posing far more than those with deficits, threats to global prosperity. In "National Self-Sufficiency" The Yale Review, Vol. 22, no. 4 (June 1933) , he has already highlighted the problems created by free trade.

His view, supported by many economists and commentators at the time, was that the creditor countries might be as responsible as the debtor country for the imbalance in exchange and that both should be under obligation to bring trade back to a balanced state. Failure for them to do so can have serious consequences. In the words of Geoffrey Crowther, then editor of The Economist, "If economic relations between countries do not, in one way or another, bring close enough to balance, then there is no set of financial arrangements that can save the world from impoverishing the results of chaos."

These ideas were informed by events before the Great Depression when - in Keynes's opinion and others - international loans, especially by the US, exceeded the capacity of sound investments and were thus diverted to non-productive and speculative uses, which in turn were invited default and stopping abruptly for the lending process.

Influenced by Keynes, the economic texts in the postwar period immediately provided a significant emphasis on trade balance. For example, the second edition of the popular introduction book, Money Outline , devotes the last three chapters of ten chapters to questions about foreign exchange management and especially 'balance issues'. However, in recent years, since the end of the Bretton Woods system in 1971, with the increasing influence of the monetarist schools of thought in the 1980s, and in particular in the face of sustainable trade imbalances, these concerns - and especially concerns about the instability effects of large trade surpluses - largely lost from the mainstream economic discourse and Keynes's insights have been detached from view. They received more attention after the 2007-08 financial crisis.

Monetarist theory

Before the twentieth century monetarist theory, 19th-century economist and philosopher Frà © Bastiat, expressed the notion that a trade deficit is actually a manifestation of profit, not loss. He proposed as an example to assume that he, a Frenchman, exports French wine and imports British coal, makes a profit. He thought he was in France, and sent a vat of 50 francs worth of wine to England. Customhouse will record exports of 50 francs. If, in England, wine sells for 70 francs (or the equivalent of pounds), which he then uses to buy coal, which he imports into France, and found to be worth 90 francs in France, he will profit from 40 francs. But the custom house will say that the value of imports exceeds exports and trade deficits against the French ledger.

With reductio ad absurdum Bastiat argues that the national trade deficit is a successful economic indicator, rather than a failure. Bastiat predicted that a successful and growing economy would result in a larger trade deficit, and an unsuccessful and shrinking economy would result in a lower trade deficit. This then, in the 20th century, was echoed by economist Milton Friedman.

In the 1980s, Milton Friedman, a Nobel Prize-winning economist and proponent of monetarism, argued that some trade deficit concerns were an unjust criticism in an attempt to encourage favorable macroeconomic policies to export industries.

Friedman argues that trade deficits are not always important, as high exports increase the value of the currency, reduce the previously mentioned exports, and vice versa for imports, thus naturally eliminating trade deficits not for investment . Since 1971, when the Nixon government decided to abolish the fixed exchange rate, the Current Account of America accumulated a trade deficit has reached $ 7.75 trillion per year 2010. This deficit exists because it is matched with investments coming into the United States - solely by the definition of equilibrium payment, any current account deficit that matches the inflow of foreign investment.

In the late 1970s and early 1980s, the US experienced high inflation and Friedman's policy position tended to maintain a stronger dollar at that time. He expressed his belief that this trade deficit is not always dangerous for the economy at the moment since the currency returns to the country (country A sells to country B, country B sells to country C bought from country A, but trade deficit only includes A and B). However, it may in one form or another include the possibility of foreign control tradeoff control. In his view, the "worst-case scenario" of a currency that never returns to its home country is actually the best result: the country actually buys its goods by exchanging them for cheap paper. As Friedman says, this would be the same result if the exporting country burns the dollar it produces, never returns it to the market circulation.

This position is the finer version of the theorem that was first discovered by David Hume. Hume argues that Britain can not obtain permanently from exports, because hoarding gold (ie, currency) will make gold more abundant in the UK; therefore, the prices of British goods will rise, making their exports less attractive and making foreign goods more attractive to imports. In this way, the country's trade balance will be balanced.

Friedman presented his analysis of the trade balance in Free Picking , which is widely regarded as his most significant popular work.

Trade balance effects on a country's GDP

Direct exports increase and imports directly reduce the trade balance of a country (ie net exports). The trade surplus is a positive net balance of trade, and the trade deficit is a negative net balance of trade. Since trade balance is explicitly added to the calculation of the country's gross domestic product by using expenditure methods to calculate gross domestic product (ie GDP), trade surplus is the contribution and trade deficit is "dragging" on their country's GDP.

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Trade balance vs. balance of payments

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See also

• Comparison of US imports vs exports
• Dutch disease

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Note

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External links

• What is the Drag Trade Deficit on US Economic Growth?
• Where does the US Dollar Go When the United States Experiencing a Trade Deficit? of Dollars & amp; Sense Magazine
• OECD trade balance statistics
• US. Government Export Assistance
• US Trade Deficit Described in Infographics
• Trade Deficit: Biggest Barriers to Full Employment, paper by Dean Baker from Center for Economic and Policy Research, April 2014
• John Komlos, Why trade transactions hurt Americans, "PBS made Sen $ e

Source of the article : Wikipedia