Trade Balances - Clark Center Forum

Consumption and investment smoothing is good. But often CA deficits support consumption booms that are unsustainable.

Perhaps in the very short run, but not in equilibrium.

There is no reason to think the relation is causal

Depends on circumstances. To return to steady state, export growth model worked well for China, Asian Tigers and Germany after WW II.

There is no conceptual or empirical support for this. It depends on dynamics and discount rates.

Focusing on trade is basically mercantilism. I take a global perspective, where trade always nets to zero, so this focus is meaningless.

A trade surplus means a country is saving, a trade deficit that it is dis-saving. As with people each can make sense at different times.

Depends on circustances. For small open economies and emerging economies an essential element of policy.

1st principles: neither surplus nor deficit necessarily welfare-enhance. SOME welfare-enhancing policies would raise surplus, however.

The best way to increase welfare is to engage in good policies, not go after some mercantilist ideal.

crazy assertion but plenty of people seem to believe this. to see the fallacy, note that banning imports would do it and would crush welfare

In some cases, yes, for at least some citizens.

Trade surplus is symptom, not measure of welfare.

A surplus is often taken to indicate a healthy economy, but it is not obvious how producing more than it consume makes a country better off.

Seems like the right answer to this question is: it depends.

There may be policies that reduce trade deficits and increase welfare, but most policies *designed* to reduce deficits will reduce welfare.