Unbalanced Hysteria

by Don Boudreaux on November 15, 2010

in Balance of Payments, Myths and Fallacies, Trade

Here’s a letter sent to the New York Times:

Complaining about America’s trade deficit, Robert Lighthizer claims that foreign investments in the U.S. necessarily “will leave our children dependent on foreign decision makers” (“Throwing Free Trade Overboard,” Nov. 13).  What jingoistic jabber!

When, for example, Ikea builds a store in Milwaukee, America’s trade deficit rises.  But this investment in America by foreigners doesn’t make our children more “dependent on foreign decision makers.”  Ikea cannot force Americans to shop or to work at Ikea; it must compete against other retailers and employers.  Ikea has the same power over Americans and over “our children” as does Levitz and La-Z-Boy – which is to say, zilch.

In addition, Americans who supply the land and labor Ikea employs to build this store can use their proceeds to start their own firms or to invest in existing American businesses.  To the extent that they do so, not only are both America’s trade deficit and capital stock thereby increased, but whatever decision-making ‘power’ Ikea gains in the U.S. by opening a store here is offset by the additional decision-making ‘power’ and prosperity Americans gain because Ikea’s operations in the U.S. enabled these Americans to make investments that would otherwise have not been undertaken.

Donald J. Boudreaux


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