What does ‘ exchange rates can't stabilize the balance of trade’ mean?
But if Portugal imports too much from France and exports too little, and they're both using the euro, then there is no exchange rate to adjust, and so you're just left with the trade imbalance and no adjustment.
I would question how well that works outside completely generic goods that you can buy anywhere, since with economies of scale consolidating production there is often hardly any alternative anymore.
Also, feels like there could be a way to manually address the balance without reducing people's standard of living.
Eventually those in Portugal will not have enough wealth to import above their exports, depending on how much stored wealth they have in aggregate.
So it’s still guaranteed to balance out on a century timescale…
>So it’s still guaranteed to balance out on a century timescale…
Balance in what sense? In terms of trade, countries can perpetually run a deficit if they share a currency. Wealth isnt zero sum and is continually created. This can be used to pay a perpetual deficit at a cost to growth.
I dont understand your question.
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.
IF they share a currency,
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.
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.
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.
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.
Humans create new value through labor. It is a renewable resource and you don't run out.
Currency markets are mostly too big for governments to be able to manipulate (e.g. George Soros & GBP).
If a government wants to address a trade imbalance then import tariffs is one way to do it - or policy changes affecting cost of goods produced for export.