Glamor Economics

Chapter 197

Chapter 24 Section 8 The Difference Between Buying and Selling - Trade Surplus and Deficit
Once upon a time, there were two islands named the Island of Thrift and the Island of Spendfulness.The residents of Frugal Island are as the name of the island is, they are industrious and thrifty, and they work hard every day to produce more food.In addition to meeting the needs of the residents of the island, food can also be exported to the island of profligacy.The residents cut down on food and clothing, and used the saved money to expand reproduction.Unlike Thrift Island, some residents of Spend Island have no jobs but love to spend.They imported food from Frugal Island in exchange for bonds issued by the island.Bonds and food are all denominated in "spend island currency".

With the large increase in bonds in their hands, residents of Thrifty Island began to receive less bonds, and switched to directly collecting Slender Island coins, and then purchased a large amount of Slender Island land.Eventually, they are expected to buy the entire island of Splurge.However, the unemployed are not necessarily dumber than others, and the people on the island of squandering are not willing to become tenants of the landlord's family, so they pour into the banknote printing factory in large numbers and issue the island of squandering money at full capacity.As the saying goes, "things are rare and expensive", after the currency is too large, the squandering of the island currency and its incarnation-bonds become worthless, and the land that remains the same becomes very valuable.This has brought a lot of trouble to the thrifty islanders. The squandering island currency and bonds accumulated over the years are depreciating day by day. I originally wanted to buy a villa on the squandering island, but now I can’t even afford a parking space.

Injuring one thousand enemies and eight hundred self-inflicted losses, the situation of squandering the islanders is not very good.After the depreciation of the currency, some thrifty islanders refused to accept squandering island currency and bonds.Importing food from the Frugal Island has become less easy, and it is the turn of the Splendid Islanders to save on food and clothing.This in turn led to difficulties in food sales on Industrious Island, production stagnation, and a large amount of fragrant and white milk had to be poured into the river.After losing both sides, the residents of Erdao began to reflect.The thrifty islanders realize that it is too important to stimulate consumption and stimulate domestic demand. Since there is too much food production, everyone should eat more, and don't lose weight or save money.Splurge Islanders also realize that there is nothing you can't live without a job, and nothing you can't have without excessive debt.After a few years like this, the thrifty islanders are extravagant, and the extravagant islanders are thrifty.Then the roles are reversed, and there is another reincarnation...

In the story, Qinjian Island is in a clear surplus in foreign trade.In contrast, Splurge Island is in a deficit position.Trade surplus means that the total export trade of a country is greater than the total import trade in a specific year, also known as surplus, which means that the country's foreign trade is in a favorable position that year.A trade deficit means that a country's total import trade is greater than its total export value in a specific year, commonly known as import surplus, which reflects that the country is in a disadvantageous position in foreign trade that year.The trade balance means that the total amount of import and export of a country in a specific year basically tends to balance.

"The island of thrift and the island of profligacy" is a fable told by Buffett, an American investment guru. Net assets are being transferred overseas at an alarming rate.So, is it better to have a surplus or a deficit?This requires us to analyze rationally.

The balance of payments deficit will lead to a decrease in the supply of foreign exchange in the domestic foreign exchange market and an increase in demand, which will cause the exchange rate of foreign exchange to rise and the exchange rate of the local currency to fall.If the government of this country takes measures to intervene, that is, sell foreign currency and buy domestic currency, the government must have sufficient foreign exchange reserves, which will further lead to the depreciation of the domestic currency.The government's intervention will directly lead to the reduction of the country's money supply, and the reduction of the money supply will lead to the rise of the domestic interest rate, resulting in economic downturn and increased unemployment.

A trade surplus reflects a country's international reserves or its ability to pay externally.The traditional trade concept holds that exports are for foreign exchange, a surplus is a good thing, and a deficit is a bad thing.This concept has dominated my country's trade policy and practice for a long time. In fact, excessive exports are not necessarily beneficial.

The increase in exports, if the production cannot be expanded accordingly, will inevitably restrain domestic demand and affect the needs of the people's material and cultural life.Excessive trade surplus is a dangerous thing, which means that the growth of the domestic economy is more dependent on external demand than at any time in the past few years, and the external dependence is too high.

Therefore, a country's foreign trade should pursue a long-term basic balance of imports and exports, rather than a long-term trade surplus.

my country is a big developing country, and the long-term trade surplus has also brought us a lot of trouble.

First, the growing trade surplus has brought more and more trade disputes to my country; second, although the trade surplus has increased foreign exchange reserves, from the perspective of resource utility maximization, resources have not been fully utilized; Third, the continuous high surplus leads to the expectation of RMB appreciation, which in turn leads to an increase in net capital inflows, which further leads to the pressure of RMB appreciation; fourth, the huge recurring surplus will be transformed into a large amount of currency injection. Pressure has become an important factor in the rise in inflation.

Conversely, the consequences of trade deficits are not all bad.First, an appropriate deficit is conducive to alleviating short-term trade disputes and contributing to the long-term stable growth of trade; second, the deficit is actually equivalent to investing in the purchase of productive equipment. As long as the investment project is properly selected, it can not only supplement some domestic shortages of raw materials, but also It can quickly increase production capacity, increase employment, and increase economic aggregate; third, the deficit can reduce the expectation of RMB appreciation and slow down the speed of net capital inflow; fourth, the short-term trade deficit can help ease the pressure of inflation in my country, Increase the operating space of my country's monetary policy.

On the issue of foreign trade, we should change our minds, abandon the traditional concepts and practices aimed at earning foreign exchange through exports and pursuing a surplus, and establish a policy aimed at balancing the balance of payments.Generally speaking, the government of a country should try to maintain a basic balance of imports and exports in foreign trade, with a slight balance, which is conducive to the healthy development of the national economy.

[links to related words]

The balance of trade is the difference between the total value of exports and the total value of imports of a country within a certain period of time (such as one year, half a year, one season, one month).When the total value of exports is greater than the total value of imports, there is a trade surplus, which is called a trade surplus or surplus.When the total value of imports is greater than the total value of exports, a trade deficit occurs, which is called a trade deficit or an import surplus.Usually, a trade surplus is represented by a positive number and a trade deficit is represented by a negative number.

(End of this chapter)