User:Supposn/Trade deficits and the GDP

The overall expenditure formula method for calculating a nation’s GDP is deceptively simple. GDP = {C + I + G) + (eX – i), all data terms are national price values.

(C + I + G) = all domestic spending. C= consumer spending, I = investment spending, G = government spending.

(eX – i) is a trade surplus when it’s positive and a deficit when it’s negative.

eX = exports, I = imports.

It’s obvious that a trade surplus does and a trade deficit does not increase the GDP. It is less obvious that the extent of trade balance's affect upon the GDP is hidden in the case of a surplus, and is significantly under-reported in the case of a deficit.

To some extent the prices or values of globally traded goods and services do not include ALL of the direct and indirect goods and services that supported the production of the traded goods and services. Additionally, specific goods and services' prices seldom if ever include the value of other production that was induced by but are themselves unrelated to the specified goods and services being traded.

[e.g. A factory’s production may be directly or indirectly supported by government and non-government infrastructure, facilities, goods and services. A factory’s production can also induce additional or increased production of beauty parlor services or library hours that are unrelated to what the factory produces].

In the case of trade surpluses, all of this is reflected within the GDP. It is imbedded and hidden within the term, “(C + I + G)", (i.e. domestic spending).

In the case of trade deficit, (to the extent that the prices or values of the imports do not include all direct and indirect foreign expenses supporting production and the unrelated foreign production induced by the production of the imports}, these values are not reflected within the GDP formula and are thus unreported.

It is estimated that each dollar decrease of USA’s trade deficit increases our GDP by three dollars more than otherwise. The GDP formula only attempts to report what we produce domestically. It does not report what we would produce to the extent that we decrease our trade deficit.

The proposal for Import Certificates that’s based upon Warren Buffett’s trade concept would significantly decrease USA's trade deficit and increase the aggregate sum of USA's imports plus exports.

Refer to www.USA-Trade-Deficit.Blogspot.Com http://en.wikipedia.org/wiki/Import_Certificates