Comment: This is the US/Canada trade data for 2017, according to the US government. It shows the US with a modest $2.76b surplus. We have a very large dairy surplus with Canada as well, suggesting, by the president's own criteria, we are unfair to them. But I don't think that's the case.

Mosler: Not to forget imports are real benefits and exports real costs, it's better to pay less than more, and a trade deficit gives that nation more fiscal space. ;)

Comment: Exactly right Warren. But the way trade deficits are being demagogued, I don’t hold out much hope of people grasping that. Maybe we should just say when you pay $25,000 for an imported car, you get a car in return.

Mosler: If Trump wins consequently our domestic prices rise more than our real earnings, negatively altering our standard of living. AKA reduced real terms of trade etc.

Mosler: A tariff is a transactions tax that tightens fiscal and the higher prices also reduce domestic demand. Import volumes also slow, as total global demand is reduced.

Comment: DJT's goal isn't to get US to pay more for stuff, it's 2get the other countries to remove tariffs applied to USA products they import, so USA products can compete "Fairly" in other countries,4business, like we allow here. This in turn circulates $ back to USA to buy more imports?

Mosler: Exports are real costs. It's about optimizing real terms of trade.

Comment: Donald Trump says if we abandon Saudi Arabia it would be a terrible mistake saying it’s about oil prices, arms deals & Iran. He claims 450 billion in Saudi deals but they’ve promised only 14.5 billion and he is ignoring CIA conclusion crown prince ordered Khashoggi murdered.

Mosler: Exports to the Saudis are real costs to the US, not real benefits. The President and the press all have it backwards.

Mosler: And note that currency depreciation is most recently seen as a weapon to gain a trade advantage, which of course entirely misses the point that exports are costs and imports benefits, but that's another story. ;)

Mosler: The real wealth = domestic output plus imports minus exports. Not valuation vs some other currency that might be appreciating vs yours,

Comment: I get the problem with borrowing in a foreign currency, but how much capital equipment can you buy with Turkish lira?

Mosler: 1. A lot 2. Any nation can sustain domestic full employment without imports of capital goods, and Turkey has very high reported unemployment.

Comment: If the domestic production replaces imports, it's a net loss for the American people (in real terms). That productive capacity could be used for something else. If it's new production, I don't see an issue.

Mosler: It could still be used for something else if we still were getting the imports.

Comment: Yes! More on the different sources of inflation please !!!!

Mosler: Insiders getting local currency via the banking system and state owned enterprises and selling it for foreign currency for personal use, driving down the currency causing import prices to rise, for example.

Comment: "In the case of Turkey, a 10% depreciation of the Turkish Lira relative to its trading partners results in its import prices in Lira rising by 9.3% one quarter after the shock and by 10.0% eight quarters after the shock, a horizon referred to as the ‘long-run’." Gita Gopinath, IMF.

Mosler: And how about export prices? At the macro level. it's about real terms of trade. Internally, it's a (very serious) distributional issue. Real wealth is domestic output + imports - exports (all in real terms).

Mosler: President Trump and his team seem to have no idea that the trade deficit creates fiscal space for the likes of his tax cuts. Nor do the media, business professionals, main stream economists, etc. seem to get it???

Mosler: If you include emissions from the fuels they export Canada and Australia, for example, might be a bit higher... :(

Comment: Good piece on currency values and the trade deficit: Treasury overlooks the true culprit behind US dollar strength.

Mosler: Exports are real costs, imports real benefits. US real wealth goes up with real domestic output and real imports, down with real exports. Retaliating against the likes of China for not charging us enough, an absurdity that undermines our real wealth and standard of living.

Comment: Net imports that reduce US aggregate demand create the fiscal space for the likes of the tax cuts and a Green New Deal. This global trade war is dimming the future for all of us, and with no pushback from the politicians, economists, and business press who all have it backwards.

Mosler: Reads to me like that analysis at best would be applicable to fixed fx regimes.

Comment: As it turns out, much of the rest of the world does actually take advantage of the U.S. It's why we have a half trillion dollar trade deficits. This was *explicit* strategy, to trade off our middle class to win the Cold War. The Cold War's over, so should the freeloading off us

Comment: They may retaliate, but they are in a much worse position because they depend on us as the importers of last resort. That's the problem! Elizabeth Warren is right. So is Donald Trump, but he has no attention span and is quite stupid

Mosler: Not to forget that imports are the real benefits, exports the real costs.

Comment: Agreed the so called "bleeding hearts" suddenly care more about "prices" rather than people having a productive job to shelter, feed, cloth, and educate their family with dignity. Hard to pay less for something if you don’t have a job!

Mosler: Trade deficit= a productivity increase= fiscal space to lower taxes or increase public services to sustain full employment levels of aggregate demand. Imports are real benefits, exports are real costs- the problem is the policy response that turns a good thing into a bad thing.

Comment: What if the export is a natural resource like oil. Would your comment apply to Norway?

Mosler: It's about optimizing real terms of trade- getting the most back in exchange for your exports. Tariffs do the opposite.

Comment: "Imports are good. Exports are bad" Warren Mosler, founder of MMT.

Mosler: Imports are real benefits, exports real costs.

Mosler: No US company has to go there, especially knowing 'stealing IP' is functionally legal. And I wouldn't propose refusing the golden eggs (net exports) from the goose (China), to somehow 'force' them to change some other behavior, we don't approve of?

Comment: Charts show, from Jan to Jun, Chinese exports to the US declined $30b (compared with the same period last yr) while US exports to China fell $12b. That’s a 19% decline for us exports and a 12% decline for Chinese exports. China was harder hit absolutely, US harder hit relatively.

Mosler: Not to mention exports are real costs to an economy, and imports real benefits...

Comment: Even the Germans are realising that they are in a dead end street and their austerity and black zero dogma are a farce.

Mosler: Trump's tariffs are one of the many things that can undermine an export driven economy.

Comment: When a national government curbs spending on public purpose initiatives because the domestic economy can no longer absorb deficit spending, that is not austerity. Austerity is when the national government deliberately sets out to wear the people down through attrition, severely limiting their ability to obtain the currency necessary to meet the basic living needs of the people, whilst the government redirects its spending power and relinquishes its control over public services to a small handful of private entities, thereby handing over to those entities greater control over the nation's real resources and as a result of that, greater profits. In other words, austerity is the deliberate shift of fiscal policy with malice aforethought, away from the public purpose. It is violence.

Mosler: The purpose is most often to support exporters at the real expense of the macro economy. President Obama: "...to consume less and produce more; to import less and export more.” And he puts GE's Jeff Immelt in charge... :(

Mosler: Seems to me this is the most serious challenge yet to keeping the EU together? Massive negative labor supply shock, collapsing export markets, cumbersome institutional structure (at best), highly stressed population before this crisis, etc. etc

Mosler: To my point that exports are real costs and imports real benefits::14 April 2020 Coronavirus Charts and News - Export of Medical Supplies In Short Supply Restricted

Comment: Diamond: Were you duped by President Xi?

Trump: No I made a deal that’s phenomenal... You know who was duped? You and the Obama Administration

Mosler: Point of fact, the US trade deficit is about US exploitation of China and the other net exporters, whether any of them know it or not. And Trump tariff policy, etc., is meant to kill the goose that's been laying our golden eggs. ;)

Comment: Unilateral eh, Uruguay no tiene que hacer nada y lo beneficia. "Los impuestos sólo se cobrarán en pesos uruguayos, y los sueldos sólo se pueden pagar en pesos uruguayos. Los bancos argentinos pueden tener cuentas en esa moneda". Fin.

Mosler: It will diminish your real wealth as you could only accumulate desired and required net financial assets via net exports

Comment: I see it this way: Trump was the price voters paid to keep out the Clintons, and now Biden is the price they have to pay to remove Trump.

Mosler: Seems it's come down to the candidates being costs, and not benefits, much like exports...

Comment: Think real terms of trade. China has been the world's slave

Mosler: And it could do it even better without net exports.

Comment: I’m pretty sure the answer to that depends on the exchange rate regime which, I think, is the point @wbmosler was making in our Webinar last week on MMT.

Mosler: Trade deficit might go down some?

Comment: Wednesday’s blog post (15/07) is now posted (18:37 EAST) - MMTed Q&A - Episode 7 - http://bilbo.economicoutlook.net/blog/?p=45394 - featuring Dr Pavlina Tcherneva discussing the Job Guarantee with me.

Mosler: My comments: 1. Unemployment defines minimum 'fiscal space'. 2. Job Guarantee does not reduce the ability to import. 3. Currency depreciation does not reduce the ability to import or reduce real wealth, however it does alter internal distribution.

Comment: How does currency depreciation not affect ability to import?? Does that apply to all countries, or is this only applicable to reserve currencies?

Mosler: Real exports exchange for real imports, directly or indirectly, at 'world prices' even if you don't have a currency at all.

Comment: The Euro zone current account surplus is at the core of Euro bullish views. But that surplus is a sign of economic weakness. It stems from non-German current accounts flipping to surplus (red), given big output gaps & demand compression since 2008/9. A deflationary equilibrium....

Mosler: There's also talk that imports are understated to avoid taxes...

Comment: Because demand expansions will push out the current account deficit further.

Mosler: And that's a good thing= lower taxes or more public services. At the extreme, if you export everything and don't import, you have nothing and die. You are arguing to kill the goose laying the golden eggs.

Comment: They are macro issues though, especially since what a country produces and what it imports matter for its long term growth prospects (because of returns to scale, cumulative causation).

Mosler: Yes, imports are real benefits, and domestic output is ultimately what's exchanged for imports, and real wealth is domestic output + imports – exports.

Comment: If the demand drain is caused by lack of competitiveness and this is driving businesses to close, you have higher unemployment and loss of productive capacity. You can restore employment easily but not competitiveness and productive capacity

Mosler: So your risk is, for example, overseas auto production expands, domestic closes due to lower priced imports and then they won't sell you the cars? Doesn't 'competition from lower priced imports' mean they are selling you cheaper cars?

Comment: But we’re talking about a situation where CADs and BoP are causing problems for a country. So it goes too far to suggest that imports are always a benefit that exports are a cost and that external issues are never of concern.

Mosler: CAD's and BOP's per se may be political problems of concern, but not real economic problems. Same with imports being real benefits and exports being real costs.

Comment: You’re talking about specific levels of specific imports at a specific point in time potentially not benefitting a nation. That’s a different argument. One that’s true almost by definition, btw. Importing vs imports.

Mosler: It's not about whether imports 'benefit a nation' in some general philosophical sense. It's about whether imports are 'real economic benefits' which, as a point of logic, they necessarily are when it’s presumed they are bought voluntarily. (vs incoming missiles, for example...)

Comment: But it's not a cost to build up productive capacity, assets and employment through exporting.

Mosler: If you are exporting and not importing it means you could have done the buildup without exporting. Please reread my 7DIF book, chapter 5, thanks.

Comment: This is why reliance on imports for a high growth rate is not the safest strategy and it Is important to build up domestic manufacturing. Building up domestic manufacturing can in the long run be achieved by encouraging exports and discouraging imports.

Mosler: That falls under strategic considerations, as previously discussed and covered in my 7DIF book, while it remains that imports are real economic benefits and exports real economic costs.

Mosler: There can also be issues unrelated to unsustainable debt build up or politics. Global recessions can be hell for countries with CADs even if these were previously sustainable, as recessions lead to a rise in global liquidity preference and a flight to safety.

Mosler: "hell for countries with CADs" referring to climate change? ;) In any case, seems nations work to increase exports during a crisis, opening the door to increased imports for those in the know...

Comment: Easy short-term prediction, and everybody should agree with it. The dollar will stay dominant as a reserve currency for a long time. However, the dominance is bound to be gradually eroded and the trend towards a multi-currency system will continue.

Mosler: And the cumulative US trade deficit grew! Seems non residents like to sell things to the US and hang on to some of those $... ;)

Comment: Watching the global not just the U.S. trade data is often useful. European import data for example. Euro area May/June imports from China were about EUR 5b a month above pre-COVID 19 levels.

Mosler: Worth checking to see if China is building euro forex reserves which would indicate targeting the euro zone for exports and sustaining it via euro strength?

Comment: There's a wide-spread view that the Dollar is too strong & that its strength is harmful to the US. It's the other way around. The Dollar is markets' sum-total view of the US vs everyone else. And even with all the damage from COVID-19, we are in a lucky and privileged position...

Mosler: Growth of US exports of high margin, 0 marginal cost of production tech/software.

Mosler: Islm is applicable to fixed fx, but you have to stretch and redefine terms, etc. to try to make any sense of it with floating fFor regions within a nation, gov pubic services received are benefits paid for via tax liabilities and so are, functionally, imports. Gov spending on labor for production of its public services is a real cost for those regions and so are, functionally, exports.

Comment: BofA disagrees w/USD debasement thesis. Recent Dollar weakness does not reflect USD replacement by other currencies, none of which meet reserve currency requirements. Euro cannot be credible alternative without fiscal & banking union. High debt & loose MonPol not only US problems.

Mosler: And a trade deficit helps a lot. Accounting identity and all that....

Comment: My only beef with MMT. Not always case surely. Eg Saudis have a surplus of oil they cannot possibly use themselves. Ditto NZ and milk or lamb meat. Economy based on exporting surplus.

Mosler: And the point of exporting that stuff is to buy imports, no???

Comment: Big misconceptions is that Euro is undervalued due to the c/a surplus. The surplus reflects big output gaps, i.e. Spain & Italy no longer absorb German exports, which instead now go to the rest of the world. Fiscal union with north-south transfers fixes this, not a stronger Euro.

Mosler: And it's been suggested that substantial imports go unreported to avoid taxation. :(

Comment: "Without major institutional reform, the euro will not become a dominant currency". Interesting piece on the global currency status of the €uro.

Mosler: Trade deficit helps a lot... ;)

Comment: No, not down to demand at all. Its government paying twice as much, for same thing. Everyone who works in the public sector, close to the min wage, has just had a double pay rise. And people earning more than min wage would have also had pay increase since they are worth more. These people are doing exactly the same thing as before.

Mosler: But is it their spending that is driving up market prices? Or, for example, are there unrelated factors driving forex prices/costs of imports, etc. leading? Bank's bolivar lending to insiders (via state owned enterprises?) sold for forex corruption.

Comment: After reading another terrible newspaper article, a gentle reminder: Italy has not been living beyond its means! Since 2012, Italy has been recording higher exports of goods and services than imports. Italians consume less than they produce. Italy has been an international net lender!

Mosler: Not wrong to call it exporting your real savings....

Comment: Biden has nominated Katherine Tai to be the next US Trade Rep.She is a House lawyer/staffer who knows the issues inside & out. She's a strong labor advocate, a stance that could crush a lot of countries in trade negotiations. But she has NEVER led an organization or negotiation.

Mosler: Wonder if she knows imports are real benefits and exports real costs...

Comment: The euro-area trade surplus is back near record highs.

Mosler: If you believe the numbers. There have been reports of underreporting of imports to dodge the tax bite

Comment: This is the part where we are discovering that the Titanic is not equipped with enough life boats for everyone to play nice... with a shrinking labor force, Europe must source demand from China. With a shrinking labor force, China must source demand from Europe... Me first!

Mosler: Only because they restrict domestic demand.