Emerich de Vattel, Le Droit des gens (Leiden, 1758).
Classical economic doctrine holds that countries compete by producing and exporting what they make best, while importing from other countries those goods where they lack comparative advantage. The tally of exports and imports results in either a trade surplus, thought to be good, or a deficit, considered bad.
Today that 200-year-old theory is flawed and overly simplistic. And when policy makers insist on reducing the way that countries economically interact to a single figure - the trade balance - it is dangerous, especially when it unleashes a specter of protectionism.
FOREIGN TRADE BALANCE
The balance of trade forms part of the current account, which also includes other transactions such as income from the international investment position as well as international aid. If the current account is in surplus, the country's net international asset position increases correspondingly. Equally, a deficit decreases the net international asset position.
The trade balance is identical to the difference between a country's output and its domestic demand (the difference between what goods a country produces and how many goods it buys from abroad; this does not include money re-spent on foreign stocks, nor does it factor the concept of importing goods to produce for the domestic... [continues]
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