It is clear that imported stuff is not part of domestic production. However, they are certainly part of domestic consumption. However, we use the formula GDP = C + I + G + (X - M). Right? Obviously, import gives access to foreign resources, it gives freedom of choice to the local consumers, it pushes local producers to be competitive and efficient, and of course it highly contributes to the sustainability of the international supply chain and global trade and governance. Even imported stuff like machinery and technology might be drivers of domestic productivity, pharmaceuticals, and educational innovations are directly linked to human capital development. However, we economists deduct imports from GDP calculations while using the expenditure approach, particularly using expediture approach. This has opened the door for protectionists like President Donald Trump to impose tariffs on imports, thinking that foreign exporters are ruining the American economy. A lot of Americans are happy as if their Trump is realy a stateman who puts America first. Who are the ultimate payer of tariff? Are not the local consumers? Are American consumers ready for the forthcoming inflation? Do you think international traders should be treated that way to protect local industries? In short-run, he may earn trillions but in longrun he may loose multi-t. Then, we shall judge as trade deal genius or trade deal idiot, "Trumpty or Dumpty". In my perspective, USA is very global rather than local. USA is so so rich not only because of the local resource. Is it his decision rational or irrational choice, even from the USA's comparative advantage point of view?
This is more of a definitional issue. GDP is limited to national borders, hence net exports are taken into account. Imports are therefore deducted. One may indeed have doubts about what should be included within the national income account, but this would require a discussion of productive and unproductive income, which mainstream economics avoids like the plague. I think the problem for many politicians is to analyse economic issues from a very narrow perspective while biasing their arguments. However, this is not due to the expenditure approach to calculating GDP.
The key reason is that GDP measures the value of goods and services produced within a country. Imports are produced abroad, so including them would overstate the value of domestic production.
GDP=C+I+G+(X−M)
Suppose:
- C = $500 (includes $50 spent on imports)
- I = $100
- G = $150
- X = $80
- M = $50
If we didn’t subtract imports, total spending would be $830, but that would wrongly include $50 worth of foreign production. So we subtract it:
GDP=500+100+150+80−50=780GDP = 500 + 100 + 150 + 80 - 50 = 780GDP=500+100+150+80−50=780
So, subtracting imports ensures we’re measuring only what’s produced within our own borders.
We subtract imports (M) in the expenditure approach to avoid overstating GDP and to ensure we are only counting goods and services produced within the country during a particular period.
Technically, impots are part of local consumption, investment and government expenditure. Therefore, we subtract import from GDP to avoid double counting. Right? My question is rather more theoretical and philosophical. Why politicians mistreat foreign traders? Is not it because they think that import ruins local industries?
Mesfin Mulugeta Woldegiorgis An early discussion of beneficial imports was undertaken by mercantilists, who pointed out that the accumulation of gold was favoured by the importation of natural resources and agricultural crops only. The consequence of such reasoning was, unfortunately, a pro-colonial ideology. More contemporarily, the point is made that it makes sense to import only machinery and technology. Many specialists in so-called competitiveness point out that it is advantageous to import low-technology products and inputs, those in particular that are subject to the process of commoditisation and do not create dependence on another country or economic bloc.
GDP using the expenditure approach subtracts imports because GDP measures the value of goods and services produced domestically, and imports are included in consumption, investment, and government spending figures—so subtracting them prevents overstating domestic output.
GDP subtracts imports in the expenditure approach to avoid overstating domestic production, as imports are included in consumption, investment, and government spending, but do not represent value generated within the domestic economy.
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