Unusual busy-ness keeps me today from blogging as much as I’d like. Darn that, as the news and my e-mailbox today bulge with blog-worthy material. But I can’t resist flagging this extreme example of just how bad is much of the current commentary on trade. Here’s a passage from this essay at Fox News.
Economists are inclined to believe bilateral deficits — or even deficits in particular commodities like oil — don’t matter. But if one country or commodity is huge in the numbers, then the global problem can’t be addressed without addressing the particular country or commodity.
China accounts for more than 60 percent of the U.S. trade deficit, and petroleum accounts for more than a quarter of the rest.
These paragraphs reveal confusion of a sort that I seldom encounter even in my worse freshman students who are taking their first economics course.
First, saying that “Economists are inclined to believe bilateral deficits – or even deficits in particular commodities like oil – don’t matter” is akin to saying that “Mathematicians are inclined to believe two plus two doesn’t equal five.” This matter is really not one about which any serious economist has any questions or reservations or qualifications.
On this matter, good economists aren’t “inclined” as much as they are certain.
Good economists are certain that there is absolutely no economic reason to suppose that, in a real world of more than two countries, each pair of countries will export to, and import from, each other the same amounts. For example, there is no reason in economics (or good sense) to suppose that the Chinese will buy from Americans the same dollar amount of goods and services that Americans buy from the Chinese. None. No reason at all. And yet Professor Peter Morici – the author of the above-quoted paragraphs – seems to suppose that bilateral trade deficits and surpluses (as they are called) are evidence of something being amiss. But in fact they aren’t. Or (to use an old chestnut of an example), a bilateral trade “imbalance” in a world of more than two countries is no more surprising, unnatural, unexpected, or ominous than is the bilateral trade imbalances that each of us has with the supermarkets at which we shop.
It gets worse. Morici implies that bilateral trade ‘imbalances’ reckoned also in the items that are traded are a problem (or are evidence of a problem). Morici above suggests that something is wrong if a country imports a much greater amount of some particular good or service than it exports of that good or service. (Specifically, Morici worries that a country that buys more oil than it sells on international markets has some meaningful ‘imbalance’ or ‘deficit’ that portends potential problems.)
With his stated worry about trade imbalances in the items that are traded, Morici is completely at sea, rudderless and clueless, on an intellectual raft made of notions less sturdy than balsa wood.
Human beings would not trade with each other if each of us could produce each item that we consume as well as other human beings can produce each of those items. Ditto for countries. If Americans have a comparative disadvantage to the Chinese at producing a particular kind of steel, a major point of trade is for the Chinese to specialize in producing that kind of steel and for Americans to specializing in the production of (say) lumber and other outputs. Americans then trade lumber to the Chinese in return for that particular kind of steel. It’s called “specialization” – and specialization, by its nature at the country level, results in the people of each country producing and selling, on international markets, some goods and services and buying from the people of other countries different goods and services.
And yet, according to Morici, something must be off-kilter with my own economic situation given that I buy a great deal more wine and neckties and contact lenses and household furniture and pork than I produce and sell of these items.
Finally, in the second paragraph quoted above, Morici does the equivalent of comparing apples to orangutans. If one starts a sentence by giving the numerical figure for America’s trade deficit with one country as a percentage of America’s trade deficit with all countries, it is blither-blather to finish the sentence by saying that some portion of “the rest” of America’s trade deficit is accounted for by America’s trade deficit in some commodity (here, petroleum). Such a claim by Morici make no more sense than I would make were I to say that 60 percent of my debt is owed to Acme Bank and a good portion of the rest of my debt is accounted for by the excess of the value of shoes that I buy over the value of shoes that I sell.