The Real Rookie

Recently Vox Day made some rather straight forward points about the trade war and the American economy. And somebody, just itching to prove he is smart, thinks he's found something wrong with Vox's statements.

But Vox makes a rookie mistake regarding GDP. A positive ‘balance of trade’ (more imports than exports) does NOT imply more GDP growth. It is true that the balance of trade is a component of GDP, but there are three other components, as shown by the GDP formula below:

GDP = C + I + G + (X − M)

He then points to this article, and quotes it:

Imported goods all end up as either C, I, or G because either consumers or the government are consuming them or the imported good is something like a big piece of machinery that ends up in a factory, thereby qualifying as investment (I). Thus, exactly offsetting the negative effect of a new import through the M term is a positive addition to one of C, I, or G.

I don't understand why anyone thinks this disproves Vox's statement. Tariffs lead to people substituting domestic purchases for some of these imported ones, and if a domestically produced piece of machinery ends up in a factory, it thereby qualifies as investment too. So, even if we grant the imports cancel out, by the same logic we've got a sort of double boost from a domestically produced product that gets purchased instead.

GDP will rise. It is strikingly simple.