Some Fundamentals About International Trade

by Don Boudreaux on March 20, 2017

in Myths and Fallacies, Seen and Unseen, Trade

In today’s U.S. News & World Report I discuss some basic economics of international trade – basic and very straightforward economics that, scarily, seems nevertheless to be too complicated for the likes of Trump and his trade advisors to grasp.  A slice:

No misconception [about trade] looms larger than the one that claims that trade increases long-term unemployment. It’s true that trade destroys some particular jobs. For example, when Americans buy more imported steel, some American steelworkers likely lose jobs. Being concentrated in a handful of industries, jobs lost to trade are easy to see. But the same trade that destroys jobs also creates jobs elsewhere in the American economy. These job gains, being spread across many industries, are difficult to see. But they are real.

Foreigners who sell to Americans get dollars in return. And like Americans who are paid in dollars, foreigners either spend or invest their dollars. When foreigners spend their dollars, American exports rise. More jobs are created in American industries that export.

American jobs are created also when foreigners invest their dollars. For example, when the Canadian company Tim Hortons opens new stores in the United States, not only are American workers employed to build or refurbish these stores, Americans are also employed to staff them. Or when Koreans use dollars to buy stock in Apple or Caterpillar, these companies become better able to expand operations.

And by the way, Americans who sell their stocks to foreign investors don’t stuff the money into mattresses. They spend or invest the dollars received from these sales. This spending and investing also create jobs in the United States.


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