Reduce the trade deficit; increase GDP & median wage

Warren Buffett’s concept to significantly reduce USA’s trade deficit.

I’m a proponent of a proposal that was introduced to the Senate in 2006. Trade deficits are always detrimental to a nation’s GDP. Trade deficit’s detriment to the GDP exceeds the amount of the deficit itself. The GDP bolsters the median wage.

The basic concept is for exporters who choose to pay the federal fees acquire transferable IMPORT Certificates for the assessed value of their goods leaving the USA. Importers would be required to surrender IMPORT Certificates for the assessed value of their goods entering the USA. Surrendered certificates are cancelled.

This trade policy would decrease USA’s trade deficit of goods and increase the aggregate sum of USA’s imports plus exports. It can be drafted to be completely self funding. It would not require any additional federal spending, taxes or debt. It would be a permanent stimulant that would increase our GDP more than otherwise.

Refer to: www.USA-Trade-Deficit.Blogspot.com and
http://en.wikipedia.org/wiki/Import_Certificates
Respectfully, Supposn

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Unbalanced trade’s affect upon GDP is understated.

Producers generally require some production support from other producers of goods and/or services. Production support provided by governments or other non-profit entities are generally not reflected within the prices of goods.

For want of a better term I’ll describe all production supports (to the extent they’re not fully reflected within the prices of the supported products), as “secondary” production.

Rather than being supported, some secondary production of goods or services may be induced by another producer. For example increased factory production could induce increased production of local beauty parlor services. In such cases I describe these additional beauty parlor services as the factory’s “secondary” production.

All of a nation’s exports and all “secondary” production due to those exports contribute to the GDP. To the extent that export’s “secondary” expenditures are not reflected within the prices of any exports, their contribution to GDP is not attributed to global trade.

Imported goods contribute nothing to USA’s GDP. Their prices and the prices of their “secondary” production all contribute to the producing nations’ GDPs.

Purchasers can only spend their dollars once. To the extent that the USA continues to be a net goods purchaser, we’re denying ourselves of our trade deficit of goods’ amounts that could otherwise contribute to our GDP.

Due to “secondary” production, unbalanced trade’s affect upon the nation’s GDP is generally understated. Trade surpluses always contribute and trade deficits always are detrimental to the nation’s GDP.

Refer to: www.USA-Trade-Deficit.Blogspot.com and http://en.wikipedia.org/wiki/Import_Certificates

Respectfully, Supposn

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Negatives Not Included

Prolonged, persistent, and ever increasing trade deficits, cause many problems not covered by the GDP numbers.

Examples:
(1) Increases in poverty and homelessness.
(2) Lower wages across most industries.
(3) Dependency on government assistance programs.
(4) Lost industries.
(5) Lower living standards.
(6) Inadequate tax revenue.
(7) Lost skills and trades.
(8) Import dependency.

The trade deficits we experience support foreign economies at the expense of our own.

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Because you can do wrong, and get away with it, doesn't make it right

understated by not for the reasons you list

See Productivity, GDP and jobs.

But from the GDP report, if you put your comment in the right place, it clearly shows the trade deficit is a huge negative on GDP.

Secondary factors in production are counted in PCE, investment and government spending is counted in GDP, just as secondary factors in production abroad are not counted in their import prices and imports here.

Imports "contributing nothing" do minorly contribute "something" in that there is an entire industry unloading containers and moving them around the U.S.

Not that they wouldn't be working doing that for U.S. goods the other way but you cannot claim it "contributes nothing" in spite of it being minor contribution in comparison to the growth and secondary industries related to full bore domestic production and goods/services for export.

Are you a one trick pony? There are many, many different ways to introduce tariffs de facto, never mind all of the other factors which create unbalanced trade. This is why a VAT is being considered, it's an "at the border adjustment tax", legal under the WTO and dynamic.

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Trade deficits contribute nothing to a nation’s GDP

Robert Oak, you wrote, “there is an entire industry unloading containers and moving them around the U.S.” but loading domestic goods and moving them around the U.S. similarly contribute to USA’s GDP”.

It is only prior to imported goods entering the USA or domestic goods reaching their producers’ shipping platform that there’s aggregate economically meaningful differences between them”.

Their differences are all due to their source production and those differences account for their differing affect upon our GDP. The production of import goods (to the extent that that USA Labor or goods, or components did not contribute to the creation of those goods), contribute nothing to USA’s GDP.

Respectfully, Supposn

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you miss my meaning

It's clear, from the report and the graphs imports are a subtraction in the GDP equation. What you are not understanding is I"m talking about retail trade, so truckers moving the stuff around, the sales clerk selling the cheap Chinese made Walmart toy, they do add to GDP, because that is domestic activity.

Ya all, when in doubt, look at the equation and the breakdown. There is a reason I write up these overviews starting with it, to make it clear what component does what in gross domestic production. It's very clear imports are subtracted and via the BOP which is before price indexes, does try to take into account any partial domestic production or "double counting".

I did not say "how much", obviously there is no comparison vs. durable manufacturing production of domestic goods.

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Post production costs within the GDP

Robert Oak, I am not writing that “post production costs”, (i.e. the distribution, handling, retailing, repairing or otherwise supporting an existing product) do not contribute to the nation’s GDP.

What I’m stating is that other than international shipping costs, “post production costs” are similar for similar domestic or imported products. Imported products do not contribute ADDITIONALY more than a similar domestic product’s “post production costs” to USA’s GDP.

It’s not my economic logic but my English grammar that’s incorrect.

Due to choosing an imported rather than domestic product we reduced our GDP by the price of the particular product at U.S. port of entry. We also denied ourselves of other costs that were directly or indirectly due to the particular product’s productions but they were not reflected within the price of the product at U.S. port of entry. All of these prices contributed to the producing nations’ GDP.

Respectfully, Supposn

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read the GDP post please

Again, there is a REASON I put the basic GDP equation first and foremost in these overviews. That reason is to show that imports are SUBTRACTED. GDP, as I state the definition again, is DOMESTIC product.

To understand GDP and what it actually measures, one needs to start with that basic equation.

It would really help if people would read the post and say what they do not understand about it. That will help me write better to find out where the bottlenecks are.

If you read the post, you will see, clearly, imports are subtracted from GDP and you will see how the trade deficit affects GDP. What is reported quarterly is the change in GDP.

What is incorrect seems to be you not getting the original post, that GDP does NOT contain imports by definition.

One can argue some of the nuances on this fact, I keep pointing to phantom GDP in particular, but first and foremost, one needs to get that basic equation down on the definition of the economic metric GDP.

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trade imbalances affect upon GDP is understated

Robert Oak, production not reflected within the prices of globally traded products are fully accounted for within their producing nations’ GDPs but they are not attributed to global trading.

Thus to the extent that there are occurrences of such items and their cascading effects within nations’ economies, trade surpluses contributions or trade deficits detriments to nations’ GDPs are under reported because their effect is not identified and quantified as being due to their nation’s global trade imbalance.

Respectfully, Supposn

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Production of imports contribute noithing to the GDP

Robert Oak, as you wrote, it’s incorrect for me to state that imports contribute nothing to the nation’s economy.

Unlike domestic production of products, (prior to the goods having entered the nation), the production of imports contribute noting to the nation’s economy. After products have been produced and reach a domestic producers’ shipping platform or the importing nation’s receiving dock, there is no additional advantage between them.

To the extent that we choose to purchase foreign products, we have refrained from purchasing domestic products. The distribution, servicing and use of ANY products, (i.e. the products post-production contributions to the nation’s GDP) are the similar for both imported and domestic products.

An Imported product’s post-production contribution to the nation’s GDP is not greater than that of a similar domestic produced product. The choice of quantities of similar domestic or imported products purchased are mutually exclusive; If you choose to purchase a total of 10 items, 10 of them cannot be fully domestic AND additionally 10 of them cannot be fully imported.

Unlike domestic products, the production of foreign products contributes extremely little or nothing to our nation’s GDP.

Respectfully, Supposn

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GDP and imports

If you look at the equation, which is in the post, you see imports are subtracted. This is because GDP means Gross Domestic Product. Domestic means "within our borders".

I'd say this is what is implied, that if one has the same amount of domestic production, yet imports declined, it implies a substitution effect to create that other domestic activity by buying o raw materials, or "core" materials, i.e. "stuff to make more stuff".

I'd also say that's true, that the post production contribution to GDP is lower that a similar domestically produced version, in real GDP, but there are import and export price deflators in real GDP...

Let's say something costs $10 to make in the U.S. but $1 dollar in China. So, instead of 10 items available for post production, you now have one. Let's say that item is critical to post production, say, hammers to build houses. Then by importing, you have 10 people working instead of one on that house.

Yet you also lost that worker(s) who used to make the hammers. So, there is a scenario where it might be possible post production domestic economic activity is greater than the original item.

Real GDP has had inflation removed and their are price deflators for this as well...

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GDP & imports

Robert Oak, if you’re contending that there’s a difference between similar imported or domestic products’ post-production contributions to GDP, I disagree.

Certainly there’s a difference in prices of products arriving at shipping platforms of domestic producers and similar imported products arriving at the receiving dock of a USA port of entry. That’s why USA has lost so many industries. After those points have been reached, that’s what I describe as the products post-production contribution to USA’s GDP.

Some contributions are proportionate to the price, but seller’s generally more concerned with their percentage rather than their mark-up per unit. To them lesser price doesn’t mean lesser profits because if they can’t move more of the same products, it free cash to carry additional inventory products.

Some post-production GDP contributions are actual similar amounts for similar imported or domestic products. Regardless of how much cheaper it was to produce a foreign washing machine, the shipping, handling, maintenance and (in later years), repairing of similar machines will per unit contribute similar amounts to the GDP.

Similar imported or domestic products’ post-production contributions to GDP are also similar.

Respectfully, Supposn

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GDP & imports

Robert Oak, you introduced another facet to this discussion when you referred to importing raw materials, tools and equipment for production of more products.

(The version of the trade policy I advocate would exclude the values of specifically listed scarce or precious minerals integral to the goods being assessed. This is for both economic and political reasons).

Unfortunately USA’s trade deficits have not been due to imports for increasing USA’s GDP. If that were the case we wouldn’t be suffering consistently increasing trade deficits of goods for over a half century.

Under this proposal the USA would increase exports or decrease imports of consumer goods or produce more consumer goods domestically or make do with less consumer goods.

Since this trade policy is market driven, we would not expect the USA to limit ourselves to any single one of these choices. The global and USA markets would behave in a manner that would result in a “mix” of these activities.

Respectfully, Supposn

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VAT

Robert Oak, I’m an advocate replacing income taxes with a general consumption tax to whatever extent feasible.
VAT is a superior method of sales tax administration and is particularly advantageous when crossing political borders.

I’m a proponent of a trade policy that would be of no government expense, requires no additional taxes or debt, and would not deny resources from other programs to improve our nation.

This trade policy proposal is not mutually exclusive to VAT. It does not itself negate existing or future laws or regulations that our congress is likely to enact.

Respectfully, Supposn

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Negative Manufacturing

Projections by the Bureau Of Labor Statistics, United States Department Of Labor, indicate negative growth for manufacturing. ( Projections for 2008 through 2018 )

http://www.bls.gov/oco/oco2003.htm

Cheap foreign labor adversely affects our GDP numbers.

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Because you can do wrong, and get away with it, doesn't make it right

An Import Certificate policy’s superior

Robert Oak and Sonny Clark, thank you both for responding to my message. I too often fear that this entire portion of the forest has been falling but extremely few of us hear it.

I agree there are many, many different ways to introduce tariffs de facto but an Import Certificate, (i.e. IC) policy’s superior to all other existing or proposed trade policies I’ve encountered. This is a proposal of a market (rather than government) driven policy that grants government no policy discretion.

Unlike tariffs, it rewards exporters of USA goods thus indirectly but effectively subsidizing exports of such goods. The increased cost to USA purchasers of foreign goods are directly related to IC’s open global market values. The decreased cost of USA goods to foreign purchasers are inversely related to IC’s market values.

Our nation is not experiencing an era of political harmony and conciliation but I believe this superior trade policy rather than tariffs would be more politically acceptable.

Respectfully, Supposn

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see the phantom GDP link

but the BLS will claim offshore outsourcing is not negatively impacting productivity, but that's kind of a secondary calculation.

For the record, read the offshore outsourcing blog post rant by me. I quote a really good post and link to it about how wrong BLS 10 year job growth and contraction projections have been. Then, look at the great "jobs of the future" and they are saying it again, STEM, I.T. will be the huge growth jobs, but their total numbers in many categories have declined, there literally is a glut of PhDs, and to make matters worse, they count foreign guest workers in those occupational categories and unemployment rates.

It's very tough to get a concrete answer but those trying to deny offshore outsourcing isn't having a negative effect must not get out much. Proving it is is a whole other ball game.

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Phantom GDP

Robert oak, I don’t know how to find your link to “phantom GDP” so I googled the term.
Refer to http://www.businessweek.com/magazine/content/07_25/b4039001.htm .

A Blumberg Business Week magazine article by Michael Mandel contends USA’s production growth is being statistically overstated within the gathering of for calculating USA’s GDP.

The profits of global corporations are real but that too often, (if not more often) do not increase actual investments (rather than transfers of wealth) within the USA. Too often those global corporate profits do not increase, and often are at a cost of decreasing net jobs and wages within the USA.

This particular line of the link caught my eye, “But phantom GDP can be created by the introduction of innovative new imported products or by the offshoring of research and development, design, and services as well--and there aren't enough data in those areas to take a stab at a calculation”.
I, (similar to most others) are quickly latch on to what we believe supports our own contentions”.

It’s generally difficult if not impossible to objectively assess the values of information passing within entities or between mutually agreeing entities. Relationships of transferring goods, services and information over national boundaries and dealing with differing national laws, regulation and common practices add to assessment complexities.

It is not unlikely that “off-shoring of research and development, design, and services” or the transfer of such information from the USA to offshore entities beyond our borders are to a great extent ignored or undervalued and it’s likely that they are not fully reflected within the prices of globally traded products.

Robert, I boastfully refer to the posting (Sat, 02/26/2011 - 09:08) within this thread entitled “Trade imbalances affect upon GDP is understated”.

Respectfully, Supposn

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a few things

Firstly, it's rude to put someone's name over and over again in a comment, when the comment authors are listed. This is why user's names are listed and there is a reply button. There are over 1300 people on this site who are registered, active users and we also have many anonymous comments.

Secondly, I linked to the posts, written by me, on Phantom GDP in the comments already. I'll link to it again, Productivity, Phantom GDP, Jobs & Outsourcing.

Thirdly, this original post is very weak in content, continually promoting one concept, with little analysis, and is quite old. Therefore comments will be locked on this thread.

If you wish to participate, please comment appropriately on some of many posts on trade, GDP, offshore outsourcing, globalization, insourcing, labor arbitrage...there are over 4500 posts on this site.

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VAT would certainly help but it’s not a cure.

Robert Oak, a federal VAT would to some extent mitigate but not significantly reduce USA’s trade deficit because it would be equally applicable to both domestic and imported products.

Foreign producers pay VAT to their governments for their domestic sales but that tax is waived for their exported sales. VAT nations collect VAT for products imported into their nation. Their VAT revenues derived from imports have a dual purpose; they are additional government revenues and they prevent what would otherwise be significant tax advantages for importers of products into their nations.

Because our major federal tax revenue is derived from income taxes and we have no federal consumption tax, we do not identify and waive federal taxes upon USA’s exported products. USA producers of exported goods pay full federal taxes and importers of USA products pay their full share of VAT to foreign governments. This tax disadvantage is one of the many disadvantages that confront attempts to export USA products.

Many of USA’s imported products derive from nations utilizing VAT as a major source of their government’s revenues. Those nations waive VAT upon their exported products. We have no federal consumption tax and states cannot tax products directly imported into their states from foreign nations.

USA’s domestic producers whose pay their full share of federal state and local taxes must compete with foreign producers enjoy a significant tax discount from their own governments. A product reaching a USA producers’ shipping platform is then at significant tax disadvantage to a similar imported product reaching the dock at a USA port of entry.

Additionally, foreign nations are unable and/or unwilling to properly compensate their workers and the USA attempts to generally practice absolutely “pure” free trade. USA producers cannot compete if we tie down both of their arms.

Respectfully, Supposn

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