In the case of Japan and China, isn’t there something political as well as economic going on?

I don’t think Peter Schiff regards the trade deficit as a problem in and of itself. I think he is only asking the question, why is there a *chronic* and ever increasing trade deficit when in a free market one wouldn’t expect this (except under really special conditions.)

I think Schiff is arguing that via America’s dominant position in the world and the dollar reserve currency status, America is able to run trade deficits that would not be possible if there were a free market. And further that as this runs against the natural direction the free market would be probably be taking, there will be eventual consequences.

That is, he seems to be suggesting US policy has been to rig the system in its own perceived favor, but that in the long run this won’t pan out. Instead it’ll have really negative consequences.

I think it'd be great to ask the next person who advances that argument if they think that a) the lack of sales is in fact due to trade barriers or b) the Japanese and Korean buyers, correctly or not, don't think much of American cars?

If a) then aren't those countries the real losers, needlessly making a good product more costly?

If b) then haven't you just pointed out the real problem, which isn't going to be changed by any protectionism but only better advertising or manufacturing?

Incidentally, small market makers in extremely liquid securities have been largely pushed out. That's good news as it means the market is extremely efficient and transaction costs are minimal. The new thing is for large market makers (SIG, for example) to provide locked markets for commission. More risky, but worth it for both customer and market maker.

Yes, we're off topic now, but at least it's related.

I have invoked the ceterus paribus clause numerous times because we're assuming nothing else changes other than Mr. Toyota's decisions.

Now, If there are no exogenous shifts in the supply and demand curve of any appreciable amount, we can safely assume (ceterus paribus again) that changing elasticities can change the bid-asked spread, and hence liquidity.

Marketmakers, as you know, absent the presence of other information, can determine the equilibrium which would occur in the Walrasian auction by ensuring appropriate inventory adjustments.

That is, the bid price is on the supply curve and the asked price is on the demand curve, aligned vertically over quantity, such that these spreads cluster near the true equilibrium price.

Now, assuming no change in price variability, changes in elasticites, do in fact change liquidity, all things being equal.

All else aside (I'm getting tired of saying ceterus paribus), typically we assume that supply and demand curves usually become more elastic in the long-run, and with smaller bid-asked spreads and more liquidity, this would tend to put pressure on dealer profitability and some may leave the market as they are earning economic losses.

But anyhow, while we're assuming constant variability in these thought exercises, it seems as though we have all deviated substantially from talking about trade issues.