Quote:
Originally Posted by jt217
Why are you so sure that reducing imports would increase GDP? The reason imports are in the "GDP Equation" is that they're already captured in other terms, if we reduced the rate of imports, wouldn't those other terms drop as well? Isn't everything you post based around an assumption that isn't backed up by any sort of data?
Yes. To measure GDP (i.e., production within the United States), you go around and see how much is *consumed* within the U.S., then you adjust for items consumed in the U.S. but not produced here (imports) or produced here but not consumed (exports). So, for example, you would see that a car was sold to a U.S. person for $30k. That's $30k of consumption, and let's assume that all the manufacturing was done here too. Then you need to check to see whether any of the components were imported. Let's say that $5k of raw steel was imported. That means that the net contribution to GDP from this manufacturing was $25k, which is $30k of consumption minus $5k of net imports.
In this example, you can't simply assume that if the imported steel was not available, it would be replaced on a one-to-one basis with domestic steel. If that happens, then the car sells for $30k, there is no import adjustment, and the contribution to GDP is $30k. However, it's just as possible that less imported steel means fewer cars are sold, and the $30k car we are talking about is *never actually produced.* In that case, you still don't have a $5k "drag" on GDP from the import of the steel, but you also don't have the $30k of consumption! So the net effect on GDP is negative $25k.
EDIT: As an analogy, imagine that you are trying to figure out how much your cat weights. One way to do it is to pick up the cat and weigh yourself. Then you get on the scale without the cat, and see what the difference in the two measurements is. Mathematically, you subtract your weight from your weight holding the cat to arrive at the cat's weight alone. However, it makes no sense to describe your weight as a "drag" on the cat's weight. The cat weighs what it weighs, you're just trying to measure it.