Phil Armstrong
Published online 10th April 2026
Modern Monetary Theory and International Trade: Developments on the Base Case for Analysis
Abstract
Modern Monetary Theory (MMT)’s approach to international trade distinguishes it from other schools of thought. From an MMT perspective, exports are real costs as they require giving something up that could have been consumed at home whereas imports are real benefits as they involve other nations giving something up that they could have consumed. Given a nation’s ability to consume goods and services is based upon what it can produce domestically plus what it can import, it follows that a country should aim to fully employ its available labour force and maximize output (subject of course, to the demands of ecological sustainability) and maximise its real terms of trade. MMT recognises that the existence of a current account deficit (CAD) is de facto evidence that foreigners have positive net savings desires for financial assets denominated in domestic currency. As long as such desires exist, a nation can run a CAD and there is no “imbalance” in the sense described by orthodoxy. Both the net importing nation and the overseas holders of net financial assets are able to satisfy their consumption and net savings desires, respectively (Armstrong, 2024).
Such an approach constitutes a ‘base case for analysis’ (Mosler, 2010) and has been criticized on several grounds, financial, strategic, ethical and environmental concerns have been expressed. In this paper, the validity of criticisms and their implications for trade policy are assessed.
Key words
Modern Monetary Theory, International trade, Current account balance, Structural autarky