December 09, 2006
The advantages of criticizing trade

Don Boudreaux's letter to Kai Ryssdal, host of American Public Media's "Marketplace," appears (with permission) here:

Dear Mr. Ryssdal:

Marketplace routinely frets about the size of the U.S. trade deficit. So I was surprised when on yesterday's show, just after David Johnson reported that Intel earns 85.4 percent of its revenues from abroad, you asked Mr. Johnson if it "troubles" him "that all these big American companies are so dependent now on revenues from overseas."

Firms earn lots of revenues from overseas by selling lots of goods and services overseas. Such sales reduce the size of the U.S. trade deficit.

Now I don't worry one whit about the trade deficit. But your frequent fretting about this deficit, combined with your concern that many American firms earn substantial revenues from their foreign operations, tells me that you don't grasp even the basic principles of international trade.

This letter opens my eyes to yet another way that trade can be misrepresented: Selling abroad makes us dependent on foreign money. Of course, buying from abroad makes us dependeent on foreign products.

Add this gem to the usual litany of woes:

Running a trade deficit means that foreigners are taking away jobs from Americans who could be producing the imported products. At the same time, the implied foreign investment makes us dependent (that word again) or the whims of foreigners. Never mention the people who have jobs because of those investment.

Running a trade surplus means that, on net, Americans are investing overseas. The long-run implication is obvious: We are building factories to provide jobs for foreigners, when that money could be used to build American factories. As a result, foreigners will be able to produce more in the future and we will become dependent on their products because of our short-sighted policy of allowing Americans to build factories elsewhere.

Critics of trade just can't lose.

Don expands on this at Cafe Hayek.

Don's post suggests that this type of reasoning (?) be called msilitnacrem--reverse mercantilism. His email message suggested that "Marketplace" should be renamed "Stateplace." Both suggestions have merit.

Posted by Wilson Mixon at 02:29 PM in Economics

The statesman who should attempt to direct private people in what manner they ought to employ their capitals would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it. -Adam Smith

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