Copy That

by Don Boudreaux on October 23, 2012

in Balance of Payments, Trade

Here’s a letter to CityBizList.com:

Prof. Peter Morici argues that the U.S. trade deficit is “a huge drain on demand for U.S. goods and services and the principal reason the American economy is growing slowly” (“The Risk of Economic Collapse and the Presidential Elections,” Oct. 22).  If true, Prof. Morici himself is an accomplice to the forces that inflict this harm on America.

Prof. Morici is a pitchman for Kyocera office copiers, which are sold by Kyocera Document Solutions America.  Although headquartered in New Jersey, this firm is a subsidiary of Kyocera Corporation, a Japanese company.  These facts are relevant because every cent that Kyocera Corp. invests in its New Jersey subsidiary adds to America’s trade deficit.

Now in reality there’s nothing at all harmful about these financial arrangements that increase the U.S. trade deficit: rather than buy U.S. exports, non-Americans instead spend their dollars to finance a profitable company in the U.S. – a company that manufactures useful products as well as hires Americans to help produce and to sell those products.  America’s economy grows.

So while all such foreign investment here raises America’s trade deficit, it clearly does not – contrary to Prof. Morici’s claim – stymie American economic growth or promote higher U.S. unemployment.  Indeed, had Uncle Sam followed the kind of advice offered today by Prof. Morici and pursued policies to eliminate the trade deficit, the company that pays Prof. Morici to serve as its pitchman almost surely would not exist.  Prof. Morici (and many other Americans) would be poorer as a result.

Sincerely,
Donald J. Boudreaux
Professor of Economics
George Mason University
Fairfax, VA  22030

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