This letter is to an e-mail correspondent who once owned a small metals-processing firm in Missouri.
Mr. Jack O’Toole
Dear Mr. O’Toole:
Thanks for your e-mail.
I did indeed read in the Wall Street Journal that China’s exports are falling. Unlike you, however, I do not regard this development as “fantastic news for we Americans and our economy.” Nor do I believe that it means “[m]ore business and jobs for us!” In fact, the opposite is true: a reduced willingness or ability of foreigners to export to us makes us poorer, not richer.
Suppose that the WSJ had reported, not a shrinkage in China’s exports but, instead, a shrinkage in humankind’s technological know-how. Would you think this news to be “fantastic”? Reduced technological know-how has essentially the same effects on the U.S. economy as does a reduced willingness of foreigners to export to us: in both cases, we receive in exchange for our work effort fewer goods and services than we received earlier.
For example, a decline in the quality of truck engines – by reducing the average amount of freight carried by each truck – might create more jobs for truckers. Likewise, if humans forget how to make electric drills, nail guns, and other power tools the resulting decline in each construction-worker’s output might well create a larger number of construction jobs. But surely you would – and rightly so – lament rather than applaud any such decline in technological know-how. And for the same reason you should lament any decline in foreigners’ willingness or ability to export to us.
As technology advances, the volume and quality of “exports” that we receive in return from our engagement with technology increase and our standard of living rises accordingly. The very same is true for trade with foreigners: as their willingness and ability to ship goods and services to us advances, the volume and quality of exports that we receive in return from our engagement with foreigners increase and our standard of living rises accordingly.
Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
This graph, by the way, shows the trend in real U.S. manufacturing output since 1987: