Quote:
Originally Posted by Supposn
Winterfall8324, trade deficits are net detrimental to their nations' economies.
Gross domestic product, (i.e. GDP) is the value of all goods and services produced. USA's GDP is usually expressed in U.S. dollars and values within USA domestic markets. Trade surplus nations' balances of trade positively contribute, and those of trade deficit nations reduced their annual GDPs.
A trade deficit indicates the nations' entire purchases of goods the nation exceeded their net GDP; (i.e. net purchases by their governments, enterprises, and retail consumers exceeded their entire net productions.) Trade deficits are particularly detrimental to their nation's numbers of jobs.
I'm among the proponents for the trade policy described in Wikipedia's "Import Certificates" article; https://en.wikipedia.org/wiki/Import_certificates. Respectfully, Supposn
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It's time to shut this crap down once and for all.
You're "among the proponents" because you wrote the Puki-nonsense, which is disingenuous and deceitful on your part.
Your whole theory fails massively because you have no understanding of Economic.
You cannot even get the basic concepts right.
We simply things to improve understanding, so I'm going to simply it here using graphs and show everyone just how wrong you really are.
These are called Production Frontier Possibilities. You wouldn't know anything about that, because you don't have a BA in Economics like I do.
We an see that the US can produce 30 cars, or 40 TVs, but it can't produce 30 cars and 40 TVs at the same time. Likewise, Japan can produce 20 cars or 10 TVs but it can't produce 20 cars and 10 TVs at the same time.
That illustrates Opportunity Costs.
What do you have to give up in order to get what you want?
People, households, business and industry and even governments make decisions like that every day. It's probably not too smart to give up 8 hours of work to stand in line for 8 hours to get tickets for a Skinhead O'Connor concert valued at $25 but astonishingly, some people would, just as some people would stand in line for 2 hours to get a free hamburger. It's not exactly "free."
Land, Labor, Capital, Inputs and Human Capital are all scarce to some degree (some more than others).
That's why your economy cannot be 50% manufacturing, because you'd have to give up entertainment, leisure activities, and a lot of services, grocery, retail and other things to do that.
For this exercise, we assume the US can produce a maximum of 30 cars; Japan 20 cars.
The US can produce a maximum of 40 TVs; Japan 10 TVs.
There is absolutely positively no doubt whatsoever that the US has an Absolute Advantage when it comes to both cars and TVs over Japan, but then that should be a no-brainer given that the US has a larger population, significantly more land, and significantly more Capital and resources.
Absolute Advantage is irrelevant and meaningless except in one instance: War.
Absolute Advantage in war often indicates the winner, because the country with the Absolute Advantage has more soldiers and can produce more war materiel.
People like you and the moron Media pundits conflate Absolute Advantage with Comparative Advantage. They are not the same thing and I'll prove that and prove why Absolute Advantage is irrelevant, but Comparative Advantage is the key to prosperity while proving how harmful your Import Certificate nonsense really is.
A few things first.
Neither the US nor Japan would manufacture only cars, or only TVs, because that's not what consumers want. Usually you produce a mix, so Japan would produce 8 cars and 4 TVs, and so long as you are on the Production Frontier line, everything is peachy.
But, what if you were inside the line?
What if the US produced 20 cars and 10 TVs? That's the red "x" on the graph.
That would be gross inefficiency, because you're not using your Land, Labor, Capital, Inputs and Human Capital in the most efficient way.
Finally, I know some of you are smarter than the average bear and you need to know this "line" is not always a straight line. Sometimes it's curved, because for any number of reasons you might face increasing or decreasing Opportunity Costs.
Think of it this way, would it make sense to pop one kernel of popcorn? If you're gonna pop one, you might as well pop 40 or 140, right?
So it is with manufacturing and services. Your Opportunity Costs can increase/decrease as you produce more, or increase/decrease as you produce less. You just need to be aware of that.
We can calculate the Opportunity Costs here.
Japan can make 20 cars at the expense of 10 TVs, so 10/20 = 0.5
US can make 30 cars at the expense of 40 TVs, so 40/30 = 1.3
For TVs, we just take the reciprocal.
The Opportunity Cost for Japan's TVs is 2 and for the US it is 0.75
Let's talk trade.
Japan and the US both want to offset their Opportunity costs, so the equation is:
0.5 < n < 1.3
Any number that satisfies "n"
and there are no losers; only winners.
Let's assume that the US and Japan agree that 1 is the number for "n" because it works for them.
Japan trades 15 cars to the US for 15 TVs.
Everyone ready? Pay attention....here it is....
Those black dots are outside/beyond the Production Frontier Possibilities.
The US made 40 TVs and traded 15 of them for 15 cars. As I explained, the US would not otherwise be able to produce 40 TVs and make 30 cars.
Likewise, Japan made 20 cars, and traded 15 of the for TVs. Japan would not otherwise be able to produce 20 cars and 15 TVs.
That area outside/beyond the Production Frontier Possibilities is GDP growth.
Whoomp! There it is. I just annihilated the OP's Import Certificate nonsense.
B-b-b-b-b-b-but Trade Deficits!
Not relevant.
To add insult to injury, that GDP growth occurs whether you have a Trade Surplus or a Trade Deficit or neither.
A Trade Surplus is not an indicator of a healthy economy. You can be in a recession and have a Trade Surplus, because you're not consuming, right?
A Trade Surplus can also exist if the economy is inefficient, even though it may not be in recession.
So, enough of the Wikipedia Import Certificate nonsense already. You got nothing to back your claim except hot air.