The Trade Deficit Illusion: The Monstrous Trade Model
12 Pages Posted: 13 Jun 2009 Last revised: 22 Aug 2015
Date Written: June 12, 2009
Abstract
Trade is a reciprocal relation, and must always be balanced. This paper shows that the traditional partial model of international trade is a monster model, combining the demand and the supply of two different markets into one graph. Such theory thus misleads some people to use trade deficit to accuse each other or to start trade wars. Any effort to reduce the so-called trade deficit must be in vain, for the latter does not exist. More than that, it must also hurt the host country.
Keywords: Trade deficit, Walras’ law, Gain from trade
JEL Classification: F11, F13
Suggested Citation: Suggested Citation
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