I see. Even if you have little wealth, I dont mind taking it all. It just means you cant buy much.
Imagine of two families. Whenever one gets money, it buys food from the other. The 2nd keeps taking the money and investing in their garden, making it bigger and more efficient.
How can their be a ‘perpetual deficit’ in this case? Or in the case of Portugal and France trading?
Eventually one party will exhaust all their available resources, be that money, gold, desirable trade goods, trust, credibility, etc… and won’t be able to run a deficit anymore.
Countries continually produce new value.
If one party has a gold mine, or scientists, or workers, or anything that produces net positive value, it generates wealth. If you retain that wealth and reinvest it, it can compound and this is called economic growth.
Lets say you, with your human labor, can use 10 bricks to produce 20 bricks. If you do this every year, your wealth grows. first 10, then 20, then 40, then 80, ect.
In this senario, You can trade with your neighbor and run a 10 brick deficit every year, but you wont exponentially grow your production and wealth. You will have 10 the first year, make 20, trade away 10, then end up where you started. You are sustainable forever, but not growing.
Your house will remain small, and the house of your trading partner will grow ever larger.
Yes… but these Portugese bricks have to be somehow better, in some aspect, than French bricks, for them to be traded in the first place.
Be that quality, quantity, availability, pricing, etc…
Eventually Portugal will exhaust all it’s bricks, and future brick opportunities, that are better in some aspect, relative to French bricks and French future brick opportunities.
And when that happens with every possible thing and opportunity in Portugal, relative to French things and opportunities, then the trade deficit naturally disappears.
You're focusing on the quantity aspect of the metaphor. Reinvesting can not mean only more bricks, but also better. But quantity also may helps sell them cheaper than your competition.
of course, It can be cheaper to import foreign goods than making them at home. Thats almost always the case with trade deficits.
That is beside the point of what the long term consequences of running a trade deficit are, if they are sustainable, and how currency exchange impacts these factors.
China can produce most things cheaper than anyone. Economically, it's pointless to compete with them. However, if too many think the same, you get bottlenecked and compete for access to the supply, which raises prices. You bevome also politically subservient to China.
