Peter May — Modern Monetary Theory (MMT) and international trade

This discussion has foundered on the rocks of semantics. The assertion is that imports are a real benefit and exports are a real cost. This is means that real resources are being transferred from domestic use in the case of exports, which is a real cost domestically, and real resources are being received in the case of imports, which is a real benefit domestically.

Countries trade with each other either to obtain goods less expensively than they can be produced domestically, or to obtain goods for which the country lacks enough real resources to produce.

All economists agree with this assertion based on the meaning of terms. This is simply a case of understanding economic terminology.

In every monetary exchange for goods, one party receives a good, financial or real, and the other party receives the price of the good. In so doing, the buyer receives a good and the seller agrees to save in the currency in which the price is denominated, regardless of whether the parties are households or firms. In the case of international trade, these transactions are summarized in the balance of payments in terms of aggregates of imports and exports. The balance of payments of countries is of a different order than household and firm accounting statements. Confusing or conflating them is a category error.

Progressive Pulse
Modern Monetary Theory (MMT) and international trade

Peter May

The real benefit to international trade is the opportunity to obtain goods more cheaply than by producing them domestically. The proper way to view exports is as a cost: in an ideal world, foreigners would provide us with an infinite amount of imports for free.

One reason why the EU treaty is taking so long is that one implication – foreign competition in government procurement – is being treated as a cost, when of course the possibility that taxpayers might obtain more for less should be treated as a benefit.

The Globe and Mail — Economy Lab 

Imports are a benefit, exports are a cost. Is it clear now?
Stephen Gordon | Professor of Economics, Universite Laval Quebec, QC Canada

(Published March 31, 2011 and updated April 29, 2018)

Bill Mitchell – The government is not a household and imports are still a benefit

A key post on MMT. Plus, it is short.

Bill Mitchell – billy blog
The government is not a household and imports are still a benefit
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

What really happened to the economy when oil prices crashed?

Is it true that the oil price crash did not translate into higher consumption?

This graph below tells the story. Starting from Q2 2014 when the price of WTI crude was $105 (green line). You can see that Personal Consumption Expenditures (blue line) rose by an additional $353 billion, cumulative, over the ensuing four quarters.
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The reddish brown line is Non-Residential Private Domestic Investment. Even that rose, though not by much. (Oil effect.)

The economy grew more slowly because imports increased so yes, there was leakage. However, demand was strong.

Norihiko Shirouzu — Volvo To Sell Chinese-made Cars In U.S. This Year - Execs

Volvo Car Group plans to export a Chinese-made midsize sedan this year to the United States, and is starting to weigh the possibility of building a vehicle factory in the United States, people familiar with the Chinese-owned automaker’s plans said. 

Both moves would be significant for the auto industry and Volvo’s parent, Zhejiang Geely Holding Group Co [GEELY.UL]. So far, global automakers have chosen not to ship vehicles made in China to the U.S. market in any significant numbers, and efforts by Chinese automakers to export vehicles to the United States have foundered.…

Exporting Chinese-produced mainstream passenger cars to the United States and other advanced auto markets has been a long-standing goal of China’s indigenous automakers – an objective that has largely eluded the industry. 

"It would be a big breakthrough" not just for Geely but for China’s industry, said James Chao, Asia-Pacific director of consulting and research firm IHS Automotive. 

"Volvo is not an indigenous Chinese brand but it is wholly Chinese-owned. Perhaps this is the model or strategy that finally works for Chinese companies trying to enter the U.S. market and other markets."

Business Insider

Exclusive: Volvo To Sell Chinese-made Cars In U.S. This Year - Execs

Norihiko Shirouzu, Reuters

Winterspeak — Flexible Exchange Rates, MMT, and the Ruble Crises of MMT

Winterspeak addresses some of Ramanan's observations.

A point of clarification. Winterspeak says, "One of the more interesting MMT insights, as stated by Mosler, is "exports are a cost, imports are a benefit", which is the opposite of the usual narrative where export driven economies, like Japan, are hailed while import driven economies, like the US, are said to be more vulnerable." 

What Warren and MMT economists say is that ""exports are a REAL cost, imports are a REAL benefit," implying a monetary system in which an independent currency ("sovereign" currency) is neither a real good nor backed by a promise of the issuer to exchange it for anything real. I don't believe that is controversial in economics. 

The notion that n export-driven economic is superior to an import-driven one is a holdover from the metal standard, e.g., where international trade was settled in gold or silver and the wealth of a nation was measured by its stock of precious metal. 

That's the mercantilist position. While it is over, the same thinking persists, some would say irrationally. Now, the rational position is to prefer an advantage in real terms if it is possible to achieve, since national prosperity is measured in consumption rather than either financial claims or gold stock.

winterspeak.com
Flexible Exchange Rates, MMT, and the Ruble Crises of MMT

On matter related to trade that often doesn't enter the discussion in economics is relative power. Power has been demonstrated  in the extreme historically in imperialism and colonialism, and the slave trade, for instance. However even in contemporary, and supposedly, post-imperial and post-colonial times, power imbalance also results in economic and financial imbalance in trade, and usually this is in favor of the more powerful nation in the trade relationship.

Merijn Knibbe — The real cause of the rapid ‘rebalancing’ of the [EZ] periphery current accounts

Raphael Auer is, on Voxeu, surprised about the rapid decline of the current account deficits of the periphery countries of the Eurozone (see also here and here). But he is wrong about the reasons for this decline. The ‘rebalancing’ is mainly caused by a very deep economic slump – and not so much by an increase of productivity.

Real-World Economics Review Blog
The real cause of the rapid ‘rebalancing’ of the periphery current accounts
Merijn Knibbe

Dani Rodrik — The New Mercantilist Challenge

Short summary of mercantilism v. liberalism.

Project Syndicate
The New Mercantilist Challenge
Dani Rodrik | Professor of International Political Economy at Harvard University’s Kennedy School of Government

Neoliberalism combines features (and bugs) of mercantilism and liberalism.

Stephen Gordon — Imports are a benefit, exports are a cost. Is it clear now?

Warren Mosler links to a post by Stephen Gordon that reiterates the MMT position on terms of trade.

...trade policy would be much more sensible if our governments stopped confusing what the costs and benefits of international trade really are.

The Globe and Mail (Canada)
Imports are a benefit, exports are a cost. Is it clear now?
Stephen Gordon | Professor of Economics at Laval University, Quebec City, and a fellow of the Centre interuniversitaire sur le risque, les politiques économiques et l'emploi (CIRPÉE)

Ellen Brown — The Myth That Japan is Broke

Doesn't get that imports are a real benefit, so that in an export-driven economy national resources are allocated to foreign use instead of domestic while the exporting country builds up foreign reserves, but otherwise of interest.

Counterpunch
The Myth That Japan is Broke
Ellen Brown
(h/t Clonal in the comments)

Imperialist Indentured Workers

And people are worried about our youth, even wondering why many are dropping out of school and refusing student loans? At this rate, our kids should be worried about continued exposure to US! Try to explain the following to a 10 year old logician.

Japan: "We have ways to make our products dirt cheap to you ... and we're willing to use 'em!"

Japan Finance Minister Stresses Commitment to Acting on Undue Yen Rises

Maybe there'll be another Japan-German pact, to jointly indenture both populations? In the name of freedom?

When should we tell them that exports are a REAL cost, and imports a REAL benefit, regardless of the fiat numbers?

Meanwhile, did JP Morgan really say the following?

"People without homes will not quarrel with their leaders. This is well known among our principle men now engaged in forming an imperialism of capitalism to govern the world. By dividing the people we can get them to expend their energies in fighting over questions of no importance to us except as teachers of the common herd." - J. P. Morgan

Can someone verify that quote?

Are both Japan and America remaking themselves in Wall St.'s image?  Decisions, decisions. Is it "ban colonialism" or "banko-loanialism" .. ? Let's divide into groups and argue the point. (BMHOTK or Palm Slap or just stare in slackjawed numbness - your results may vary.)

All we need are slogans.    "Sounds stupid!"    .... vs ... "Less meaningful!"

Add Gordon Gekko as a spokesman, and we'll have some ribboting ads to keep competing frog choruses slowly boiling.  "We're ..... no ..... wiser."

Why, with continued practice & proper miseducation of our youth, we can achieve that!  It's a goal we've nearly met.  We can do it America!  Can't let Japan outdo us on THAT score either.  It's the Geithner way, or no way at all!  Yeah!  Let's DO nothing!  Forget miscegenation, "misceducation" is our real goal.

After all, we too are of no importance to ourselves except as entities to be misused.  Same for our kids.

Or?

Are US import numbers the canary in the coal mine?

A much better than expected reading for the US February balance of trade (-$46 bln vs. expectations of -$51.8 bln) caused some economists to revise their Q1 GDP forecasts higher. Barclays is now calling for a 2.7% growth rate, up from its earlier estimate of 2.5%.

We all know that the trade balance factors into the "Net Export" component of GDP, which is normally a subtraction because it's perennially negative. In this case a smaller negative number would actually end up "adding" to GDP in that it takes less away. (Got that?)

But the quick decision to upgrade Q1 forecasts may be short-sighted. That's because the improvement in February's trade balance came mostly from a sharp decline in imports, which fell by $6.3 bln. Exports on the other hand, rose by only $0.2 bln.

A fall in imports speaks to softening demand, which is something the economy has been struggling with for a while now. In fact the data shows that demand, at least as measured by imports, is falling rapidly. (See chart below.)

Net exports are the smallest component of GDP, so any improvement here has only a limited impact on overall GDP, but if the demand fall-off shows up in any of the bigger components like Personal Consumption Expenditures or Business Investment, then the gains from trade would be completely offest. The import numbers may well be the canary in the coal mine.