The Ambiguous Effects of Targeting Current Account Surpluses

Nina Eichacker

Chapter Chapter 8 in Debates in Monetary Macroeconomics, 2022, pp 149-172 from Springer

Abstract: Abstract This paper argues that seeking to maintain a trade surplus may have negative economic consequences. It explains how countries trying to run a trade surplus may generate a paradox of thrift by seeking to reduce their spending on foreign-made goods and depressing growth in both nations. When many nations do this, the result will be slow growth throughout the world. Furthermore, there is no escape from the simple math of trade balances—one nation’s trade surplus must be another nation’s trade deficit. Export-led growth cannot increase global demand. If countries experiencing trade deficits employ policies to create trade surpluses, the result will be economic volatility, which reduces spending, especially investment spending, and slows economic growth.

Keywords: Beggar-thy-neighbor trade policy; Current account surplus; Export-led growth; Balance-of-payments constrained growth; Mercantilism; Paradox of thrift (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-031-11240-9_8

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DOI: 10.1007/978-3-031-11240-9_8

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