People Produce (and Export) Only in Order to Consume (and Import)

by Don Boudreaux on December 11, 2010

in Balance of Payments, Trade

A number of folks have written to me by e-mail, and have left comments at the post, to question the correctness of the reductio, in my recent letter, of the U.S. dumping its exports into the ocean.

The reductio obviously fails (at least in my version of it) if it causes confusion.  So, I concede: it doesn’t work as I’ve used it.

But I should explain why the objection raised by most of my correspondents and Cafe commentors also doesn’t work.

It’s true that, unlike U.S. exports dumped into the ocean, U.S. exports actually unloaded on foreign docks generate money income for American producers.

But what’s the value to Americans of receiving this money?  Ultimately, that value is what this money can purchase abroad – the amount of goods, services, and assets that Americans are able to buy in foreign countries.

The only reason for exporting is to import – and the success of a country’s exports is measured by the value of imports these exports fetch in exchange (either currently or in the future).  That’s why all the talk of imports and trade deficits being drags on the economy is so misleading.

Keeping in mind that the ultimate value of buying assets in foreign countries lies in enabling their owners to increase their consumption in the future, the point remains that the success of American efforts to export is measured by the value of imports that we Americans receive in return for our exports.  The more imports per unit of export, the better off we are.

In an ideal world (for Americans), we’d get oodles of imports in exchange for no exports – but that would be the worst of worlds for our ‘trading partners.’  Likewise, the ideal world for our trading partners would be for them to receive enormous amounts of exports from America in return for no exports from their own countries – but that would be the worst of worlds for us Americans.

Those who applaud Americans getting lots of money for their exports, but who then criticize Americans for importing, or who regard greater American imports as a detriment to America – that is, those who are critical of Americans for using their export earnings to improve their living standards – are inconsistent and confused.

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