Economics 2: International Trade

Day 303, 14:30 Published in Sweden Sweden by Radsoc

In this article we're going to analyze international trade.

Country E is a net exporter. Country I is a net importer. Country E with Currency C1 sells products in Country I with currency C2. For this E receives an amount of C2 from I.

The loss of C2 from the circulation increases deflation in I. C2 is useless in E and has to be traded for either C1 or Gold.

C2 is traded for C1:
There has to be a demand for C2 on the market. This demand is created by people/companies who for some reason want C2. It could be companies from I who export to E or people from E who move to I for example. But as E is a net exporter and I a net importer, and as E exports more to I than what I does to E in this case, with the effect of moving people negligable , there will be more C2 than C1 on the market.

The amount of C2 on the market will increase, subsequently the amount offered for each C1 will increase with it. Which means that the value of C2 decreases compared to C1, which makes products from C2 more expensive.

C2 is traded for Gol😨
As before there has to be demand for C2 on the market. And as in the earlier case the conclusion is that C2 loses price compared to the one of Gold (and all other currencies with it), unless Gold is produced (bought or from gifts and invitations) at a steady rate in I. The effect will be that I hands over its gold to E, making I poorer.

That's why it's important to make sure an economy has a trade surplus or is self-sufficient. Otherwise it will end up in the crisis which involves many countries who have a Imports/Exports>1 right now. An economy can protect itself from this kind of effect by increasing import taxes at the cost of inflation granted that the imported products were bought and therefore cheaper than the local ones. Most countries will probably be unable to do this and their only option to solve the problem will then be to create wars which will increase import prices and thus increase consumption of local goods.

The only way to be completely sure a country's economy is in the hands of its citizens and not some foreign or local merchants, to avoid wars, and to make sure currency doesn't devaluate is to have a strong democratic economy - a planned economy. Established planned economies aren't affected by uncoordinated market decisions and crises like those we see in most market economies at this very moment. That's why you should support political parties that advocate the abolishment of the market hegemony, and the introduction of economic democracy.