Arancha González Laya — It's time to ditch our obsession with trade deficits. Here's why

The notion that trade surpluses are a measure of a country’s economic prowess dates back centuries. In 16th-century Europe, “mercantilists” from England to Venice sought to accumulate gold by promoting exports and discouraging imports. Their intellectual heirs today think trade surpluses boost national welfare, employment and economic growth, while deficits do the opposite.
The preoccupation with surpluses is based on dubious arithmetic: since one country’s exports are another’s imports, it is impossible for all countries to be net exporters. It also overlooks a more fundamental point about trade. The main benefit from trade is imports – foreigners sending the fruits of their labour for us to enjoy, allowing us to focus on what we do best. Working to produce exports is the price we pay to enjoy these benefits.

A better goal is to reduce the export effort needed to obtain a given quantity of imports. Economists call this “enhancing the terms of trade”. This makes intuitive sense in our own lives: you run a surplus with your employer in order to run deficits with your local grocery store, your daughter’s football league and your favourite restaurant. Now imagine if you could run those same deficits while spending only half as much time at the office.

Adam Smith recognized in 1776 that the true wealth of a nation was not the gold and silver in its coffers, but the productivity of its labour force. “Nothing can be more absurd than this whole doctrine of the balance of trade,” he wrote. Fast-forward to the present day, and his warning is once again going unheeded by policy-makers.…

So far, so good. Then...

The only way to shift the current account balance is to alter savings and investment behaviour by households, firms and governments.

Mistakes an accounting residual for a cause.

Then it gets back on track.

Popular discontent over trade springs from genuine problems. Market-opening agreements have amplified technological trends that deliver outsized gains to small numbers of individuals, firms and regions. Closing markets solves none of these, but would hurt voters’ purchasing power, destabilize businesses and weaken future productivity.

Governments need to develop policies and institutions that cushion the blow from changes brought by both competition and technology, constrain runaway inequality, and equip people and businesses of all sizes to share in the opportunities presented by the global economy. This is the real challenge in trade. Current-account balances are merely a distraction – albeit one that could prove costly indeed.

But no proposals for accomplishing this. 

World Economic Forum
It's time to ditch our obsession with trade deficits. Here's why

Arancha González Laya | Executive Director, International Trade Centre

Warren Mosler — Border tax comments, Redbook retail sales, International trade, Consumer confidence

Warren presents a simple model of international trade and taxation to illustrate Trumponomics.

The Center of the Universe
Border tax comments, Redbook retail sales, International trade, Consumer confidence
Warren Mosler

Neil Wilson — UK Terms of Trade

Modern Money Matters
UK Terms of Trade
Neil Wilson

Andrea Terzi — Do exports LOWER a nation’s living standards?

In the U.S. and (particularly) in euro countries, policies aimed at stimulating exports are (sadly) considered an effective response to lagging growth (U.S.) and recession (Euroland). Viewing a net export balance (i.e., an international trade surplus) as an economic virtue and a growth engine is a relic of Mercantilism that has had a powerful comeback, not coincidentally, with the abandonment of fiscal policy as a counter-cyclical tool.

MEPOC — Mosler Economic Policy Center
Do exports LOWER a nation’s living standards?

Andrea Terzi | Professor of Economics at Franklin College, Lugano, Switzerland

Ramanan on trade — Dani Rodrik and Joan Robinson

Perhaps it is the main aim of this blog to argue how the sacred tenet of free trade is devastating to the world as a whole and why a sustainable resolution of a crisis can only be achieved by new international agreements on how to trade with one another combined with coordinated demand management policies with an expansionary bias.

The Case for Concerted Action
“Free Trade Doctrine, In Practice, Is A More Subtle Form Of Mercantilism”
Ramanan

Until political leaders, economists and policymakers start treating the global economy as a closed system and also a complex adaptive system that functions as key in the ecological life-support system of humanity, the current insanity called neoliberalism will prevail, resulting in incalculable human misery, social turmoil, political repression, maldistribution, waste of valuable resources, and damaging externalities, including military adventurism and war.

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.