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Greater Imports Are Both an Effect AND a Cause of Economic Growth

Here’s a letter to the Wall Street Journal:

Yukon Huang correctly argues that, as the title of his essay explains, “America’s Trade Deficit With China Doesn’t Matter” (March 22).  Yet in reaching this sound conclusion he inadvertently strengthens protectionists’ hands by perpetuating other common myths about trade deficits.

For example, Mr. Huang confusingly writes that “Rapidly growing economies often experience trade deficits because surging consumption requires more imports, while a stagnant economy has less need for imports.”  While in practice people who grow richer do indeed buy more imports, protectionists reply – correctly – that surging consumption requires only more consumer goods rather than more imports.  ‘Let’s make those additional consumer goods right here at home,’ protectionists demand.  ‘We’ll grow even faster!’

Mr. Huang’s above-quoted passage creates the false impression that the only connection between economic growth and increased imports is that the former causes the latter.  In fact, however, access to imports – both as final consumption goods and as intermediate goods – is itself an important source of economic growth.  Americans’ acquisition of foreign-made products at prices lower than the costs we’d incur to produce these items at home means that we spend fewer resources acquiring these items and, thus, have more resources available to create new firms and industries, and to expand and improve existing ones.

Explicitly recognizing that imports also are a cause of economic growth exposes the protectionist policy of artificially restricting imports as being a policy of artificially stifling economic growth.

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


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