Originally posted by NUKE
Huh?
Why would they use resources to make a product if they couldn't sell it?
Two main reasons.
1. Lobbiest from the export sector and unions of the exporting country say that if they don't make the products and exchange them pieces of paper people will get laid off and that's bad.
2. US economists and succeeding governments have been putting forth the idea that exports are inherantly benefitial to an economy for decades. However the US doesn't practice this itself, we can tell by the trade deficit.
Are you saying that a country's products are worthless and they could just as soon burn them than sell them to the US for paper?
The products only have as much value as you can get for them.
I'm going to use an exaggerated example to make my point. For these purposes all national currencies have the same exchange rate. Let's say...
-Taiwan has only one product, computer chips.
-Canada has only one product, lumber
-Taiwan and Canada has balanced trade.
-Taiwan trades $1000 worth of chips for $1000 worth of lumber.
-Both the Canada and Taiwan have gotten $1000 worth of value for their exports.
-Taiwan has only one product, computer chips.
-The US has only one product, oranges
-The US has a trade deficit with Taiwan.
-Taiwan trades $1000 worth of chips for $600 worth of oranges, the remaining $400 are
printed off increasing the amount of USD in circulation by the Fed as promisary notes that in the future Taiwan will get the rest of the $400 worth of oranges.
-Taiwan ends up with $600 worth of oranges now and $400 USD.
-US ends up with $1000 worth of chiips.
The Taiwanese exporter is sitting there with $400 USD that he can't use, he lives in Taiwan and needs to pay his creditors, investors and employees with Taiwanese dollars. So the government taxes the citizens and buys the USDs off the exporter.
Now the Taiwanese government has $400 in USDs and decides they want to buy some more oranges. The US government says, "Don't do that! If you do that they will go back into circulation, USD will fall in value and your exports sector will be more expensive for us to buy. And remember exports are a good thing.". And Taiwans export sector and unions say, "Yeah, yeah!".
Next year, same thing happens and these USDs sit there in the Taiwanese central bank growing and growing. What's more their is no incentive in for people in the US to invest in a computer chip factory because the US is getting $400 dollars worth for free, so how are they supposed to compete with free chips. If there was a chip manufacture in the US they would go under, because how can you compete with free chips? Not very good in the long term.
So in the end.
-Taiwan has $600 worth of oranges, and pieces of paper they can't use.
Why not just burn them?
-A Taiwanese exporter has only one product, computer chips.
-The US has only one product, oranges, and has no chips.
-Taiwan trades $600 worth of chips for $600 worth of oranges.
-The Taiwanese government taxes it citizens, buys $400 dollars worth of oranges from the exporter and burns them.
-Taiwan ends up with $600 worth of oranges.
-US ends up with $600 worth of chiips.
What happens if Taiwan ignores the lobbies, unions and US government and buys more oranges anyway?
-Say that the trade deficit between the US and Taiwan has gone on for 10 years.
-Taiwan has $4000 USD in it's central bank.
-Taiwan buys $4000 worth of oranges from the US.
Effects in the US.
-The prices of oranges skyrockets in the US.
-The price of everything else goes up because of influx of USDs into circulation (inflation).
-US can't afford any more computer chips because of falling dollar.
-US standard of living falls.
Effects in Taiwan.
-Lots of cheap oranges on the market.
-Chip exporters go out of business (which is good because they were living off the tax payers anyways.).
-Taxes go down (because you don't have to pay the chip exporters anymore).
-More labour available for sectors that actually help the country.
-Taiwanese standard of living goes up.
To sum it up, "There is no such thing as a free lunch".
