7DIF#5: “Exports are a ‘real’ cost”


Q) Is invading China the best way for the United States to fix its debt problem?

A) “The US does not have a debt problem. On the other hand, China has a big ‘tangible goods’ problem, so let us hope they do not decide to invade us to get their stuff back.” —Craig Foster, Teacher & retired CSFB trader

A monetary sovereign can keep handing over pieces of paper off a printing press all day long, but they can’t keep handing over (‘real’) tangible goods all day long. That’s what Warren Mosler (in 7DIF#5) means when he says “Exports are a ‘real’ cost” (when making the argument that trade deficits are not a problem either)…
However, Pure MMTers should be aware that ‘exports are a real cost’ oversimplifies the many other moving pieces involved in trade differentials. When saying that, you may get some push-back. Just like Steve Keen correctly did in that recent (05/06/18) Real Progressives broadcast:

Mosler: “Having a trade deficit doesn’t constrain investment.”

Keen: “(When Australia runs a trade deficit, it means) a lot of our (Australian) assets have gone overseas…it is going to foreigners.”

Mosler: “Assets are not going overseas by running trade deficits. If you sold your Australian Opera house, are they going to dig it up and take it away?”

Keen: “I’m talking about the financial transactions paying for imports that lead to the foreign sector then buying our assets. They have claims on our assets. You are saying that is good and that exports are the real costs, that by being a net exporter (running a trade surplus), that sending real goods for receiving credit balances at the central banks is bad.”

Mosler: “There is a only nominal payment for trade deficits.”

Keen: “There is nothing ‘nominal’ about foreigners owning our assets.”

Keen had a good point. Since there are both costs AND benefits, both bad AND good, for both importer AND exporter, in both trade deficit AND surplus, we should consider a qualifier to go along with ‘Exports are a real cost’ like ‘Trade deficits are the position of strength’.

For example, you (a nation running trade deficits) are the guy paying someone else to make stuff for you. In addition you (running trade deficits) are working in the Research & Design suite innovating the products instead of on the factory floor.

That said, imports are a ‘cost’, too. Free trade can become unfair trade. Or more specifically, can morph into unfair trade practices that pressures the transfer of sensitive intellectual property to overseas governments, undermines your proprietary technology by depriving you of the ability to license it at full value and weakens your global competitiveness. Not to mention that trade deficits dangerously depletes your manufacturing base wiping out millions and millions of middle class jobs.

Until you get to the point (US manufacturing less than 12% of GDP) when you say ‘enough is enough’ (hence the present ‘trade war’ by Trump and a separate filing of a WTO violation case against China by US Trade Representative Lighthizer).



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