A host of fallacies infect discussions of a country’s so-called “trade balance,” but one fallacy in particular is relevant here – namely, the fallacy that there is a collective trade balance. Such a thing exists only in words and not in reality.
Statisticians, of course, assemble figures for each country’s “balance of trade” (or “balance of payments”). But these figures are merely sums of the independent purchases, sales, and investments of each individual and firm located within the boundaries of each country.
My household, that of Don Boudreaux, has a trade balance. So too does the household of Mary Centanni, my sister. So too, does the household of my student Linan Peng. So too does the household of…. I can go on to name the household of all Americans, as well as name all American for–profit and non–profit organizations. The buying, selling, and investments of each of these units can then be summed to produce a figure called “America’s balance of trade.”
Yet this aggregate figure is not “our” trade balance in any economically or ethically meaningful sense. For example, any debts that I owe to a foreign creditor are not debts owed by my sister, by my student, or by any other American. Similarly for any debts owed to me by any foreigner.
Talk of “our” balance of trade is talk of something that doesn’t really exist; it’s merely a figment of the imagination made to appear real by an accounting convention that has the name “trade balance.” Nevertheless, this fictitious creature is daily demagogued by those seeking to clear the way for protectionist interventions.