给特朗普先生免费上堂经济课

Recently, the US government initiated a trade war against China with excuse that China has kept too much more trade surplus and the economy of the United States has been hurt thereby. As revenge, a series of tariff have been applied upon goods imported from China therefore.

DOES THE TRADE DEFICIT TO THE U.S.A. HURT ITS ECONOMY? NOT REALLY, BUT OPPOSITE.

From common sense, we all know that the money on hand just means that, in the Social Virtual Depot, there are some goods worth of the value of the money you hold belong to you, and you may claim them back any time as you like by paying the money back to the Social Virtual Depot. So, the US$30 million held by Chinese really means nothing else but that there are certain amount of goods in the Social Virtual Depot of the United States which belong to Chinese. If Chinese don’t want to claim them back forever, what is the consequence of it, then? It means that you might “borrow” those goods out of the Social Virtual Depot with no need to give them back and consume them freely as you like literally, since those parts of goods seem like dead inventories in the Social Virtual Depot of the United States. Was that great?

Let’s view this issue from another angle. The general price level of the market is determined by the total value stayed in the Social Virtual Depot of the country against the total money issued by the central bank in principle. Now, you have the same amount of goods in you SVD with US$30 million less money in circulation, meaning USD 1 on the American’s hands worth a little bit more value it supposed to be. The more trade deficit the U.S.A. makes, the more dollar value increases, the more the common American citizens can enjoy freely. Was that great?

Even if the Chinese put all the surplus back to the market of the United States through buying the U.S. Treasury Securities, the general price level of the US market would just be pumped up to the level it supposed to be. Nothing gets hurt at all. Was that great?

WILL THE TRADE LIGUIDITY ITSELF BE HURT BY THE HUGE TRADE SURPLUS HELD BY CHINESE? NO.

According to Fisher’s Equation MV=PT, even one dollar can make the trade happening literally. It’s just matter of the frequency of the circulation of trade. To initiate the trade, you pay one dollar note to buy goods worth of it from China first, since you are the dollar note issuer. Then Chinese pays this one dollar note back through buying goods from you. So on and so forth. The total amount of goods traded can still reach value of even over trillions if the rotation speed is high enough. What if Chinese keeps this one dollar note on hand? You may ask. The answer is simple, you American print and issue another dollar note to resume the trade again. Only you, as the dollar issuer, have this privilege though. Meanwhile, you got some goods worth of one dollar staying in your SVD at your disposal. Was that great?

THE ONLY BENEFIT FOR CHINA IS THE STABILIZATION OF MONEY EXCHANGE RATE.

Opposite to the price level declining in your domestic market in general caused by the trade deficit, China has to issue more domestic money against the trade surplus for the healthy circulation in local market, meaning a bit of economical inflation domestically. The only benefit for China though, is the money exchange rate can be therefore stabilized.

Let’s suppose there are no surplus available at all. All of the sudden, the demand on USD jumps to a higher level. The consequence therefore is the exchange rate of USD against RMB will be up to ceiling for sure, according to the theory of relation between supply and demand. The goods made in US will be more expensive to those Chinese consumers. The trade between the U.S.A and China will shrink certainly. It is obvious that the trade surplus is the anchor of stabilizing the money exchange rate for those none-dollar-issuing countries. The more the trade surplus they make, the more stable the money exchange rate will be. Financially speaking, the trade surplus is just the buffer to respond to the demand fluctuation on dollar.

--- By a Chinese economics amateur, Yajun Adam Chen