Rather than treating these as propositions (are they true or false), I think it's more interesting to ask to what extent they're true? For example, the graph showing that imports and exports go up...
Rather than treating these as propositions (are they true or false), I think it's more interesting to ask to what extent they're true?
For example, the graph showing that imports and exports go up and down together seems pretty convincing. However, surely it matters which imports are taxed? Biden's tax on solar panels from China and other Asian countries had some pretty clear effects.
It's only from a very zoomed-out point of view (macroeconomic statistics for an entire country) that they might be considered equivalent.
If imports and exports are related signs of economic health, it seems reasonable that they'd change at similar rates. If a country had a recession, I'd assume they're producing and consuming less....
If imports and exports are related signs of economic health, it seems reasonable that they'd change at similar rates. If a country had a recession, I'd assume they're producing and consuming less.
An interesting question is how are trade imbalances related to debt. The US and China both have very high levels of debt, and they both maintain fairly lopsided trade deficits and surpluses. I believe there's still an ongoing debate in macroeconomic circles about the relationship. Though most economists don't think trade imbalances as inherently bad.
Principle 1 says that exports and imports go up and down together, but it’s only roughly true, over the long run. It’s more complicated - countries do have trade surpluses and deficits, and...
Principle 1 says that exports and imports go up and down together, but it’s only roughly true, over the long run. It’s more complicated - countries do have trade surpluses and deficits, and Principle 3 touches on that.
A country’s exports can be used either to fund imports or foreign investments. A trade deficit (like the US has) happens when foreigners are happy to increase their US investments. This includes both debt and equity investments. Any investment purchased with US dollars counts.
China is quite different. They have lots of foreign investments, funded by a trade surplus. (This used to be US treasuries but now includes the Belt and Road initiative.) Chinese currency controls make it harder for Chinese companies to bring profits home and for foreigners to invest in China, although apparently some restrictions have been eased a bit.
The mechanism for all this is the exchange rate. Imports and exports need to roughly balance (not including changes in investment) in order for exchange rates to remain in balance.
It’s not a coincidence that China’s exchange rate is controlled by the Chinese government and it also has currency controls and lots of state-owned foreign investment. This is all linked.
By contrast, the US doesn’t have currency controls, which allows foreign investors to easily get their money in and out, which makes foreign investment in the US more attractive. (What about Russia and Iran? Economic sanctions are the exception.)
More:
Here’s a chart of foreign direct investment in the US. It just keeps going up. And that’s just direct investment, when a foreign company owns at least 10% of a US company.
By contrast, foreign direct investment in China is dropping.
Rather than treating these as propositions (are they true or false), I think it's more interesting to ask to what extent they're true?
For example, the graph showing that imports and exports go up and down together seems pretty convincing. However, surely it matters which imports are taxed? Biden's tax on solar panels from China and other Asian countries had some pretty clear effects.
It's only from a very zoomed-out point of view (macroeconomic statistics for an entire country) that they might be considered equivalent.
If imports and exports are related signs of economic health, it seems reasonable that they'd change at similar rates. If a country had a recession, I'd assume they're producing and consuming less.
An interesting question is how are trade imbalances related to debt. The US and China both have very high levels of debt, and they both maintain fairly lopsided trade deficits and surpluses. I believe there's still an ongoing debate in macroeconomic circles about the relationship. Though most economists don't think trade imbalances as inherently bad.
Principle 1 says that exports and imports go up and down together, but it’s only roughly true, over the long run. It’s more complicated - countries do have trade surpluses and deficits, and Principle 3 touches on that.
A country’s exports can be used either to fund imports or foreign investments. A trade deficit (like the US has) happens when foreigners are happy to increase their US investments. This includes both debt and equity investments. Any investment purchased with US dollars counts.
China is quite different. They have lots of foreign investments, funded by a trade surplus. (This used to be US treasuries but now includes the Belt and Road initiative.) Chinese currency controls make it harder for Chinese companies to bring profits home and for foreigners to invest in China, although apparently some restrictions have been eased a bit.
The mechanism for all this is the exchange rate. Imports and exports need to roughly balance (not including changes in investment) in order for exchange rates to remain in balance.
It’s not a coincidence that China’s exchange rate is controlled by the Chinese government and it also has currency controls and lots of state-owned foreign investment. This is all linked.
By contrast, the US doesn’t have currency controls, which allows foreign investors to easily get their money in and out, which makes foreign investment in the US more attractive. (What about Russia and Iran? Economic sanctions are the exception.)
More:
Here’s a chart of foreign direct investment in the US. It just keeps going up. And that’s just direct investment, when a foreign company owns at least 10% of a US company.
By contrast, foreign direct investment in China is dropping.