Deeply Deficient Trade Thinking

by Don Boudreaux on January 20, 2011

in Balance of Payments, Myths and Fallacies, Trade

Here’s a letter to a Chinese news agency:

Editor, English.Xinhuanet.com

Dear Editor:

I want to jab a chopstick into my eye when I read that “China is willing to work with the United States on the imbalance of bilateral trade through communication and cooperation” (“China, U.S. need cooperation to solve trade imbalance: Chinese minister,” Jan. 20).

There is nothing to work on.  There’s no meaningful “imbalance” requiring a “solution.”  Rather than signaling a problem, a bilateral trade “imbalance” is as predictable as finding fish in the ocean.  Indeed, in this world of nearly 200 countries – and in which money can be invested as well as spent buying exports – it would be beyond freakishly odd if, month after month, the Chinese were to purchase exactly as many exports from America as Americans purchase from China.

I challenge anyone to find in any respected international-economics textbook or scholarly economics-journal article even the remotest hint that, in a world of multiple countries, trade between any two of them should be “balanced.”

Sincerely,
Donald J. Boudreaux

For any economics reporter to take seriously such notions as “the imbalance of bilateral trade” is akin to a medical reporter taking seriously such notions as the healing powers of crystals.

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