International trade and balance of payments deficit: The inflation as the missing link

Lachezar Grudev

No 2026-5, Discourses in Social Market Economy from OrdnungsPolitisches Portal (OPO)

Abstract: My paper claims that the current us policy is based on prejudices that originate in mercantilist thinking, which treats trade as a strategic zero-sum game. This thinking has dominated american academia since the 1970s through a fallacious application of game theory to explain competition between domestic and foreign companies. My paper demonstrates that competition means to compete for customers and that, in order to make profits, entrepreneurs should convince the customers that they can serve their needs in the best possible way. By maximizing their profits, entrepreneurs promote such a distribution of production among different countries that the production with the lowest opportunity costs is brought about. These profits and thus the allocation of resources can be affected by the central bank. By steering the interest rate, the central bank affects the burden of government expenditures and secures the satisfaction of the government's demand for capital. The continuous increase in demand for capital creates inflation, which does not allow those companies that do not have government contracts to maintain or renew their capital. The inability to substitute for new capital decreases labor productivity and thus increases labor costs. The stronger increase in prices compared to productivity is responsible for the permanent balance of payment deficits. The recent surge in gold price is an indication of this inflation, from which only russia benefits. So, the problem of the us balance of payments is not somewhere abroad, but exactly in her own house.

Keywords: US Balance of Payments; Inflation; Gold Price; Strategic Trade Theory; Europe; Russia (search for similar items in EconPapers)
JEL-codes: B12 B17 B25 E3 F12 F13 F5 (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:opodis:341392

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