For the Umpteenth Time

by Don Boudreaux on December 17, 2019

in Crony Capitalism, Myths and Fallacies, Trade

Here’s a letter to a new Café Hayek reader:

Mr. Black:

You ask why I object to Pres. Trump’s “hard bargaining to get China to buy more of our exports.” I have many reasons; here are the top three:

First, the main beneficiaries of increased American exports are the American companies whose exports increase. The responsibility for drumming up more exports sales belongs to these companies and not to the U.S. government.

Second, unlike when the responsibility of drumming up more American export sales is left to the companies that benefit from those sales, when government takes over that responsibility the result is that innocent Americans become hostages to their own government. The U.S. government’s chief weapons used to increase American exports are tariffs and subsidies. The former are punitive taxes on American consumers, and the latter are taxes extracted from Americans for no purpose other than to artificially goose up export sales of politically powerful American corporations – and both varieties of taxes are promised to be ended only if foreign governments stop the similar abuse of their citizens. This use by the U.S. government of Americans as economic hostages is both economically harmful and inexcusably unethical.

Third, all such bargaining is done under the mistaken impression that exports are ultimate benefits while imports are the price to be paid in order to enjoy these ultimate benefits. But in reality American exports are, ultimately, costs; they are beneficial to Americans only insofar as they increase our ability to consume, either in the current period or in the future. In contrast, imports are valuable in and of themselves. Imports are the end for which trade is carried out while exports are merely the means of getting imports.

If you doubt the truth of this previous paragraph, consider which of the following two options you’d prefer. Option 1: You, me, and other Americans work hard to produce goods and services for export to foreigners in exchange for absolutely nothing (except, perhaps, some Monopoly money). Option 2: You, me. and other Americans receive as imports from foreigners goods and services for which we pay absolutely nothing (except, perhaps, some Monopoly money).

Clearly, we Americans would be stupidly impoverished by option 1 and unnaturally enriched by option 2. It’s unfortunate for us Americans that option 2 isn’t in the cards. But it’s downright idiotic that our “leaders” – including Pres. Trump and his advisors – proudly strive to move us as close as possible to option 1.

Sincerely,
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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