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To: rb22982

It would be more accurate to say imports are neutral to GDP. The increase in C (consumption) cancels the negative associated with imports.

But labor specialization does increase GDP in the long run and a society with high imports has high labor specialization.


23 posted on 04/18/2017 7:31:49 AM PDT by impimp
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To: impimp
It would be more accurate to say imports are neutral to GDP. The increase in C (consumption) cancels the negative associated with imports.

In theory yes, but this doesn't account for the fact the tax base on imports - both the income and on labor - go to the foreign country rather than the domestic country, which hurts GDP. This wouldn't matter, though, if we were trade deficit neutral - but we aren't. In fact, real GDP growth and real median wage growth began to fall off at basically exactly the time our trade deficit took off (late 90s) and has averaged only 2.0% GDP growth since that massive trade deficit compared to 3.5% GDP growth in the decades before then [real median income has performed even worse]

But labor specialization does increase GDP in the long run and a society with high imports has high labor specialization.

Three issues with this - one the US is big enough and has access to every resource on the planet - that it can specialize itself in really everything efficiently. Back when John Locke and other influential thinkers wrote about specialization of nations, a country like the USA is today didn't exist. Second - the way it's suppose to work with trade deficits this large though is the currencies would correct to balance out trade deficits. Since the US is a reserve currency and every major government on the planet manipulates their currency to some degree, that hasn't happened and won't. Third, we don't have free trade. We allow people to ship their goods into the US, they get a border tax credit (refund) in their home country and pay nothing in taxes here. When we ship a good to say China or Germany, its taxed here, and has a VAT tax added there (effectively what we're calling a border adjustment tax).

24 posted on 04/18/2017 7:58:19 AM PDT by rb22982
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