Sunday, August 11, 2019

On the Economy — Historical U.S. Trade Balance and Industrialization

The U.S. has run a persistent trade deficit over the past few decades, similar to much of the 19th century. The shifts in the U.S. trade balance over time seem to correspond with U.S. industrialization in a global setting, according to a recent Economic Synopses essay. 
“We hypothesize that industrialization leads to structural changes that cause a nation’s comparative advantages to change relative to those of other nations,” wrote Assistant Vice President and Economist Yi Wen and Research Associate Brian Reinbold.
“Since countries trade based on their comparative advantages, we would expect to see long-term changes to a country’s trade as it enters a new stage of development,” they added....
The interesting point from the MMT POV is that when a country is growing it needs to import more than export and runs a chronic trade deficit, meaning that the country is receiving "winning" in real terms of trade. Then, after industrialization and increasing comparative advantage in manufactures, the country begins to run chronic trade surpluses, meaning that it is saving on other countries currency one balance and "losing" in real terms of trade. Then, in the third stage, the developmental process reverses, the country runs chronic trade deficits and begins "winning" again in real terms of trade.

This is opposite the conventional interpretation of winning and losing in trade competition.

On the Economy — FRBSL
Historical U.S. Trade Balance and Industrialization

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