The Tax Plan's Impact on the Trade Deficit

I've argued previously that international accounts don't really matter and have no implications for aggregate demand, employment, well-being, etc. Though it must be said it that getting imports is the whole point of trade. By definition we make our own exports, so we it's not like we can't get our hands on them without trade. Whereas imports are products we don't make, but still want. They're the whole point. Basically imports aren't bad and don't reduce well-being, in fact they increase it by this logic.

Anyway, according to the Wall St. Journal, the tax plan could potentially halve the trade deficit by reducing the incentive of firms to artificially shifting profits abroad. "Independent research suggests the legislation could...deliver a one-shot 1% or greater boost to annual gross domestic product. This shift would be an accounting effect rather than a change in actual business or worker income." 

This is supposed to happen because some US firms, instead of creating a "separate" entity that "owns" the firm's intellectual property in a lower tax jurisdiction, for example, for the purpose of attributing profits to the entity outside of the US, will no longer play that shell game due to lower tax rates in the US. This means the official trade deficit figures are presently artificially inflated. So this is a good aspect of the bill if it works as predicted (sounds like a kinda big if to me), but it won't really make any Americans better or worse off. 

As far as the effect on GDP, if it reduces our current account (trade plus net investment income and transfers) deficit, our capital account (net foreign investment plus changes in official reserves) surplus must decrease by the same amount (they are always equal, its just accounting, see prior posts). Both investment and net exports impact GDP so I wouldn't expect much difference, unless I'm misunderstanding something.

Hopefully it will make the dumb fascist asshole president happy and temper his idiotic protectionist instincts. You did it sir! It worked. The jobs came back, now who cares about getting rid of NAFTA or the WTO or any of your other dumbass ideas? Unfortunately, his supporters may not notice that this is an accounting trick leaving them no better off and actually think that being a blowhard is all it took to reduce the trade deficit. But maybe they'll notice that it was a change in our own policies that did the trick and not tearing up international agreements that our own exporters would rather keep.