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If You’re Blind to the Costs, All You See are the Benefits

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Here’s a letter to Spectator USA:

Roger Kimball’s praise for President Trump’s new trade deal with Canada and Mexico is riddled with fallacies (“Donald Trump’s US-Canada-Mexico trade deal is YUGE [2],” Oct. 1). Here are two.

First, Mr. Kimball mistakes the benefits enjoyed by a handful of American workers – especially those who work in the U.S. automobile and dairy industries – as benefits for American workers generally. Like Trump, Mr. Kimball is blind both to the reality that trade restrictions lower the purchasing power of all Americans’ dollars, and to the fact that, because these restrictions artificially divert capital and resources into protected industries, jobs saved in those industries are matched by jobs destroyed, or never created, in other U.S. industries.

For Trump to dispense special favors to a small subset of politically salient American workers at the expense other American workers is not – contrary to Mr. Kimball’s claim – for Trump to have American workers “always” at the forefront of his mind.

Second, like Trump, Mr. Kimball is mistaken to complain “that US trade with Mexico has gone from a modest surplus in the early years of Nafta to a $68 billion deficit now.” In a world of more than two countries, bilateral trade surpluses and deficits are utterly meaningless. But if Trump and Mr. Kimball insist – as protectionists do – on reading economic meaning into that which has none, then they should be pleased rather than appalled by this U.S. trade deficit with Mexico. The reason is that a rising U.S. trade deficit is evidence of increased foreign investment in the U.S. And increased foreign investment in the U.S., in addition to almost certainly signaling a strong U.S. economy, raises the wages of American workers by increasing the size and quality of the stock of capital in the U.S.

Donald J. Boudreaux
Professor of Economics
and
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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There’s nothing new in defense of free trade because there’s nothing new in defense of protectionism. The same ancient and feeble fallacies continue to be paraded as if they are magnificent new weapons in protectionists’ intellectual arsenal.

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