On Adjustment of Foreign Trade Deficits

Han Kexin

Chinese Economy, 1983, vol. 16, issue 4, 78-96

Abstract: The deficits in China's balance of trade should be adjusted, in the author's opinion, in a planned way, proportional to the rate of growth of the national product (particularly agriculture and industry), rather than be simply suppressed by curbing imports and boosting exports. Based on the assumption of proportional growth of four economic variables, we propose to build a model that can predict the adjustment process of trade deficits. The variables are (1) the growth rate of China's gross national product; (2) the ratio of its GNP to its imports; (3) the growth rate of the GNP abroad; and (4) the ratio of foreign demand for China's exports. The model can suggest how long it will take to eliminate the trade deficits. During the adjustment process, the model implies, not only will the deficits gradually diminish, but the national economy will maintain a steady rate of growth, free of sharp fluctuations in exports or imports. Hence, the deficits will be eliminated in a planned way, proportional to the growth of the national economy.

Date: 1983
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