Sunday, March 20, 2005

Trade Gaps

What does it mean when there's a trade gap? It means that one party is ordering more goods and services than is the other, and is making up the difference by forking out the cash. But what is money? Money is a universally recognized gift certificate--it represents goods and services that have not yet been consumed. Therefore, there is not now and has never been a trade gap. When, for example, China exports more to the U.S. in current goods and services than it imports in current goods and services, it is making up the balance by importing future goods and services, which simply haven't been delivered yet. Eventually, China will begin placing orders for the U.S. to fill, and calling in all of the IOU's which they've accumulated. I'm sure the Chinese will then complain about the trade balance, just as we are now.

4 Comments:

Anonymous Noumenon said...

If there "never has been a trade gap," there's never been a national debt either -- just a lot of goods and services that will be consumed by citizens in the future, rather than the government.

10:53 AM  
Anonymous Noumenon said...

(please delete post above for containing real names)

in offline conversation I realized that I don't really disagree with the main post at all and I was just being a jerk about one single phrase he used. Ignore it.

9:49 AM  
Blogger Octavo Dia said...

This is very much an epistemological argument. By changing how we think about trade balances, our reaction to it changes dramatically. Similarly, when estimating savings rates (the U.S. has an extremely low rate), we don't include research and development costs as part of savings. Thus the area in which the U.S. is strongest is not included, giving us an unnaturally low savings rate. Once again, an issue is created based on how we define things.

11:56 PM  
Anonymous Noumenon said...

"Once again, an issue is created based on how we define things."

I think that would make it a semantic argument. An epistemological argument would be if one of us thought you couldn't know the size of the trade gap because of the black market or something.

Hey, you figured out how to delete posts without unsightly detritus! That's nice.

4:24 PM  

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