This graph from Mr. Graph himself – the indispensable Mark Perry – captures very concisely much of what Russ and I (and Mark, and Doug Irwin, and many other economists) have said in one venue or another over the years. Proponents of imposing heavier tax burdens on Americans who purchase goods and services from abroad should look at this graph and ponder the following questions:
1. Do you not worry about the possibility that fewer American imports will reduce American economic activity – and, hence, reduce American employment – even in the short-run? Because nearly six in every ten dollars that Americans spend on imports are spent buying inputs to production, why do you overlook the possibility that, with fewer or more costly inputs for use in production, some U.S.-based producers will either shut down completely or produce less?
2. Because so many American protectionists are (rather inconsistently) also champions of increasing American exports, do you not worry that, by employing protectionist policies that raise the cost to U.S.-based producers of producing, that higher tariffs will actually and directly reduce exports?
3. Do the data in Mark’s graph cause you to question the oft-heard argument that America’s trade deficit necessarily is a symptom of Americans “eating their seed corn” – that is, of Americans borrowing from foreigners simply to finance consumption today?
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Here’s Mark’s take – relying heavily on Dan Ikenson’s recent superb WSJ essay – on the data.
