Balanced trade

To Gerd Kohler:
My ideas on balanced trade are not at all as extreme as you seem to think.
After all my basic principle is the middle way and in this case I should
like to interfere as little as possible with the existing free market
system. Here are the ideas, on which I should like to receive your comments.

First of all more socially concerned people would have to be named to the
governing boards of the WTO and the IMF.  Under such conditions a protocol
could be established for handling cases of countries afflicted with
persistent and substantial trade deficits. But before applying to the WTO,
any such country would have to try, to redress the situation through direct
negotiations with their trade partners with a surplus; they would have to
point out that:
1.  just as individuals obviously cannot go on spending more than they
earn, without liquidating all their assets and finally going broke,
countries cannot go on indefinitely to import more than they export,
without suffering at least some of the same consequences.
2.  They are willing to continue buying the same amount of goods OR EVEN
MORE from their trade partners as before, if they have the chance to pay
for them with increased exports.

To achieve such a voluntary accommodation, surplus countries would have the
following options:
a. Decreasing their exports until they balance imports. In order to make
this process less painful, they could concentrate their remaining exports
on items, where their comparative advantages are highest. Furthermore they
could retain their market share in some other items, through transferring
some production plants to the country with the deficit. The Japanese have
already done that in a quite significant scale (though not enough to
balance their trade; probably because they feel, that such measures are
inevitable in the long run, if they want to retain their markets share in
the US or Europe.
b. Increasing imports through the elimination of non-tariff barriers and
through demand-stimulation (higher wages, easing up on consumer credit
etc.), while maintaining their present volume of exports. They could even
produce such imports themselves through setting up plants in the country
with the trade deficit, a procedure that would offer many advantages, since
production could be planned with special regard to preferences and
specifications of their home market. 

Only after such negotiations fail to achieve results, the WTO would
authorize the country with the deficit to take defensive measures such as
unilaterally increasing custom duties and the suspension of the most
favored nation clause. 

With this right firmly established, they could probably convince their
trade partners, that they should straighten out the situation from their
side, instead of relying on the mentioned defensive measures. 

To achieve all this, without provoking a chain of mutual retaliatory
policies, ending in a full-scale trade war with reduced trade relations and
a general downturn of the economy, would require delicate and patient
negotiations, maybe supervised by the WTU. 

Such policies would benefit the great majorities in first world countries,
through retaining jobs in many of their manufacturing plants and
recapturing the full vitality of their economies. But they would also
benefit the populations of their trade-partners, where governments would
have to increase wages and promote consumption by many different means in
order to effect the required increase of their imports. 

MY CONCLUSION: IN THE LONG RUN TRADE CAN ONLY BE REASONABLY FREE, IF IT IS
ALSO REASONABLY BALANCED.

Regards   Paul