Wednesday, August 17, 2016

Smashing an Anti-Free Trade Argument

 Don Boudreaux to the Wall Street Journal:
Dennis O’Connor asserts that free trade now harms America because “U.S. goods and services imports from China were triple U.S. exports to China in 2015, $498 billion versus $161 billion” (Letters, August 16).

Let’s play along with Mr. O’Connor’s failure to understand that in a world of many countries there is no more reason to expect that America will sell to China the same dollar amount of products that it buys from China than there is to expect that in a world of many people LeBron James will sell to his local supermarket the same dollar amount of products that he buys from his local supermarket.  And let’s be clear about just what Mr. O’Connor complains – namely, that we Americans get more goods and services from the Chinese than we give in exchange.

I’ve some questions for Mr. O’Connor to probe the sincerity of his evident belief that people are harmed whenever they get in exchange more than they give.  When your employer, Mr. O’Connor, offers you a ten-percent raise, do you demand that your employer also increase your work hours by ten percent, so that your hourly pay remains unchanged?  When your local liquor store cuts by 17 percent the price of a six-pack of your favorite beer, do you demand that the store remove one of the bottles, so that you get only a five-pack?  When you buy a new computer that, because of Moore’s Law, has twice the computing power of your last computer, do you demand to pay for your new computer twice the price that you paid for your last computer?  And whenever the value of your stock portfolio rises, do you donate all of your capital gains to your stockbroker to ensure that when you sell your assets you receive in return no more than what you paid for them?

If Mr. O’Conner answers “no” to any of these questions, he should reconsider his odd belief that we Americans are harmed if the value of the imports that we receive exceeds the value of the exports that we give as payment for these imports.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
The above originally appeared at Cafe Hayek


  1. ─ If Mr. O’Conner answers “no” to any of these questions, he should reconsider his odd belief that we Americans are harmed if the value of the imports that we receive exceeds the value of the exports that we give as payment for these imports. ─

    Oh, come on, Don. You and I know that people like Dennis O'Connor are not interested in being logically consistent or sincere. He is a crass protectionist ideologue who is not interested in making economic sense.

  2. While I respect the smart and likable Boudreaux.... and agree, he is mostly correct, I challenge his notion that trade imbalances are harmless or beneficial. And lets assume that the slacker importing nation has a net deficiency after all its gross exports and gross imports markets are reconciled.

    We know that an economy cannot exist if it imports 100% of its products... For one, that would be a sign of an unhealthy or dysfunctional market is not producing desirable products for its own market. And eventually drain the private economy sector. Imbalances, at some point must be reconciled. Currently, China is purchasing some of our real estate and other assets. This is not in of itself bad, but bear in mind, the profits generated by those purchased assets will go the coffers of the new owners, in China possibly. Yes, some of it will be re-invested here, as well as other countries. Yes, it supports our workers too. But none the less, it is a sign of poor productivity. It suggests entreprenuerial creativity is not sufficient to come up with new products desirable by the partner exporting entity. This could be in part due to heavy taxes, and/or regulation hampering the productivity of the importing nation.

    If we only had an imbalance with China, but surpluses with others, I would agree, it could be sustainable.

    (feedback welcome if an EPJ reader can add some insight on my objection)

    1. In the original article that Boudreaux is comenting on, there is also a letter from John Jenkins that I think hits the nail on the head of the real problem. He says, "Government policies built on high business and inheritance taxes, high regulation costs, unnecessarily high energy costs, and high health-care and other welfare benefits reflect in a company’s profit and loss like any other business expense. How do the Washington elites expect American businessmen to compete internationally when these expenses in many industries take them out of the game before they even get started? Add in Washington’s unofficial disdain for the private sector and tell me again why trade is a winner for Americans.". Fix the government burdens and you fix the economic problems. Pretend it is caused by free trade and you will just get more problems.

      Politicians love to blame this stuff on the free market. They blame the housing crash on "the free market" even though there were many government policies in place that caused the boom to begin with. They will always try to blame the market, because the alternative is for them to relinquish their power and crony status.