Steve Keen on the MMT Trade Mantra: imports are benefits, exports are costs

Theory, Practice, Ethics, and Accounting

by Serban V.C. Enache

In a post on his Patreon, Steve Keen explains why he doesn’t agree with the ‘exports are costs, imports are benefits’ point of view, expressed by many adepts of Modern Monetary Theory. I will summarize the two views below and then offer my own two cents on the matter.

Steve Keen states that since all governments can simultaneously pursue fiscal deficits – because one government’s fiscal deficit does not require an offsetting surplus by any other government – all governments on earth can (and in fact do) run fiscal deficits at the same time. Thus, the sum of all government deficits across the world is anything but zero. Logically, that’s not case for world trade. Since one country’s trade deficit with the rest of the world is offset by the rest of the world’s surplus against it, the sum of all net trade positions is zero.

In his post on Patreon, Keen addresses Bill Mitchell’s points regarding the beneficial policy of a country actively pursuing trade deficits with the rest of the world. Keen disagrees with what Mitchell describes as “undeniable” that “exports are a cost and imports are a benefit”. Mitchell insists that, for an economy as a whole, imports represent a real benefit while exports are a real cost.

Bill Mitchell’s argument is this:

“Net imports means that a nation gets to enjoy a higher material living standard by consuming more goods and services than it produces for foreign consumption. Further, even if a growing trade deficit is accompanied by currency depreciation, the real terms of trade are moving in favour of the trade deficit nation (its net imports are growing so that it is exporting relatively fewer goods relative to its imports).

German workers, for example, give up hours of labour time, and utilise all sorts of raw materials to make motor cars and motor cycles, which they then put on ships and send elsewhere for the enjoyment of others. That is a real cost to Germany because it could use those productive resources for themselves.

So, on balance, if we can persuade foreigners to send us more ships and airplanes filled with things for us, than we have to send them in return (net export deficit) then that has to be a net benefit to us in real terms.

How can we have a situation where foreigners are giving up more real things than they get from us (in a macroeconommic sense)?

The answer lies in the fact that our current account deficit ‘finances’ their desire to accumulate net financial claims denominated in $AUDs.

Think about that carefully. The standard conception is exactly the opposite – that the foreigners finance our profligate spending patterns. In fact, our trade deficit allows them to accumulate these financial assets (claims on us).

We gain in real terms – more packed ships full coming in than leave – and they accumulate $AUDs, in the first instance…”

Though Steve Keen disputes the “undeniable” claim made by Bill Mitchell, for the sake of argument, he accepts it. Many adepts of MMT will or would argue that pursuing a trade deficit is in a country’s interest. Admitting this policy proposal for the sake of argument, Keen would take it instead as a reason to set up an international mechanism to stop countries from deliberately targeting trade deficits; because they are forcing others to run trade surpluses. Since on this MMT argument, the trade deficit countries are the winners and the trade surplus countries the losers, the former are parasites towards the latter. Keen thinks that shouldn’t be allowed if the goal is a harmonious world economy.

“Instead they (MMT advocates like Mitchell) effectively recommend it as a policy that, presumably, all countries should adopt. In my opinion, this goes against the spirit of the core MMT arguments with which I agree, because those core arguments can be practiced by all countries at once, to the collective benefit of the global economy […] The same can’t be done with trade deficits, because one country’s deficit impose identical trade surpluses on all others. Since the deficit countries win from this behaviour and the surplus countries lose, this is anti-social behaviour which should be deliberately curtailed.”

Keen has described MMT as being too US-centric (though of course Mitchell is a fellow Australian). Since the US dollar is the global reserve currency, the US is in a particular situation, for all countries need US dollars, not just to buy US goods, but to trade with each other too. This over-values the US dollar, and it translates that US exports are lower than they would be with a lower valued currency.

“And, on this MMT argument, it should be prevented from doing so because this means that the USA is being a parasite on the rest of the global economy. But MMT advocates assert that the USA should run trade deficits, and also appear to claim that it’s a good idea for everybody else too (Mitchell used Australia as his example). However, regardless of whether it’s a good idea or not, it is impossible for all countries to follow this advice. This is one of the key reasons I just don’t get the MMT case: even if I accept its premises, thinking at the global level leads me to recommend that this practice be seriously curtailed rather than recommended.”

Keen goes on to say, “I dispute what Mitchell describes as ‘undeniable’, that ‘exports are a cost and imports are a benefit’. Explaining why will involve an elaborate dynamic argument, and I don’t have time to develop that right now. But there is one implication of the pro-trade-deficits case that, to some degree, can be assessed by checking the data.

Leaving aside the global reserve currency country, which has special issues all of its own (you don’t become the global reserve without being the world’s biggest and probably richest country at the time; and being the reserve currency enables you to achieve financial outcomes that aren’t available to other countries), if the pro-deficits case were correct, and deficit countries benefited from those deficits at the expense of trade surplus countries, then by and large, once you correct for complicating factors (special raw materials like oil; huge differences in initial development levels) the world’s richest countries should be running trade deficits.”

In his post on Patreon, Steve invokes the Current Account Balance and GDP per capita data from the World Bank’s World Development Indicators for the world’s richest industrialized countries. Keen insists the empirical data doesn’t support the “trade deficits are good” mantra. The only country in the top eight that runs a trade deficit is the USA – the global reserve currency country. The rest run considerably large current account surpluses.


I too have a beef with the exports are real costs, imports are real benefits mantra (and have said so previously) – because it depends on the circumstance. Not all exports are the same, just like not all imports are the same. It’s one thing to export agricultural output, it’s another to export timber or petrol.

If you’re importing more than you’re exporting, but the goods are of a lower quality value than domestic produce, how is that a net benefit? Similarly, if you’re exporting added value goods, that means better wages for your domestic population and skill development. If you export 100 billion $ worth of minerals and import 120 billion worth of crap and or redundant products, part of which you could manufacture or grow domestically, how is that a net benefit for you in real terms?

The fundamentals for a full fledged sovereign state (mini-states excluded) are agriculture, industry, and commerce. It doesn’t matter if Aggregate Demand is imported or created domestically, what matters is for the country in question to HAVE a manufacturing base & a skilled workforce to make use of it. Yes, every net exporter of goods & services is a net importer of Aggregate Demand & vice versa. My point is that there is no guarantee that a net exporter of Aggregate Demand receives quality produce in return for its net payments.

My beef with this mantra is that it only takes money and quantity of stuff into account, not the quality, nor the socio-economic consequences of that (or any) particular trade balance outcome. While the mantra holds true in a particular scenario, and even though that scenario is likely the most common in the real world, it’s not always everywhere true in practice. And I also venture to make a seminal observation that this mantra isn’t part of Neo-Chartalism (MMT), but part of how some or most MMTers look at trade and hold a particular (mayhaps self-interested) view on a country’s outcome. Note: In some cases, current account deficits are triggered or expanded by domestic private sector deficits. I will wrap up my two cents with this graph. Change in real income of China’s middle class vs the USA’s lower middle class vs the Global top 1 percent through time.

PS: The problem with ‘tighten your belts and grow via exports’ championed by neoliberal institutions like the IMF, Troika, and others is that it implies a race to the bottom – for everyone else is trying to do the same. This method is stupid and often inhumane. The way to grow via exports is not to tighten your belt, but for the sovereign government to create Aggregate Demand and place it into the hands of foreigners – give loans in your own currency to your partner states. This allows them to absorb your exports at the negotiated level of wages and profits for your own workers and firms. The trade partner countries can do the same in turn – give you loans in their own currency to buy their output at the negotiated amounts and markups.

Serban V.C. Enache is a Romanian journalist and indie author. Though interested in history, politics, and economics, his true passion is for medieval fantasy fiction.