Tuesday, December 6, 2011

Trade Surplus...Are They Beneficial?

With current world economic malaise, most countries are trying very hard to run a trade surplus. The thinking behind this so called logic is that more money will flow into that particular country economy. With more money coming in, the affected countries hope to "wiggle" themselves out from the current doldrums. But do trade surplus really brings in the anticipated benefits?

Brunei creates the goods/services such as oil and gas, others want and export them overseas in exchange for other people money. The oil and gas are scarce to Brunei. Time, manpower and physical resources are necessary for their creation. By contrast, dollar, yen, won, pound and etc are not scarce to the US, Japan, Korea, UK and etc. Those governments have the unlimited power and authority to produce their monies, without using any resources, whatsoever. The press of a computer key sends billions of dollars, yens, wons, pounds from those governments to anywhere.

A trade surplus is an example of one country devoting great effort to creating scarce materials for another country in exchange for something that requires no effort by the other country. In that sense, Brunei is becoming a servant to others. We work, sweat and strain and use our valuable resources to create and ship to others the things (oil and gas) they want, while they, hardly lifting a finger, ship their monies to us. Who has the better deal?

Obviously, for any given individual, the situation is different. None of us has the unlimited ability to create Brunei dollar. We have to work hard for our Brunei dollar. Brunei dollars are scarce to each of us. But when we talk about trade deficits, we are talking about governments, and there the situation changes. Dollars, Yens, Wons, Pounds are not scarce to the US, Japan, Korea, UK government respectively.

To satisfy our "trading partners", we dig and ship every drop of oil and gas in our country; we burn all our oil and gas; we employ every man and woman in harsh conditions; we empty our country of all physical resources, and still they would have plenty of dollars, yens, wons, pounds to send to us, simply by touching a computer key.

This may be more easily understood by looking at China, with whom US have a huge trade deficit. One day, China will have sent the US every yard of cloth or every ounce of their steel, leaving their country a hollow, empty resource depleted, while the US blithely will go on producing dollars. Who has the better deal?

Of course, as monetarily sovereign nation, China is able to create as much of their own money as they wish. They do not need to work so hard to send their precious resources to the US in exchange for the dollars. Just like our country, we are also monetarily sovereign and able to create our own Brunei dollar as much as we wish.