Here’s a letter to a new patron of Café Hayek:
Thanks for your e-mail prompted by my recent post on so-called ‘bilateral trade deficits.’
Although you “grant a US trade deficit with another country isn’t the worst thing in the world” you “can’t help but feel that if we arranged our trade to be more equal with each trading partner our economy would be better off.”
With respect, I disagree.
Would your economic situation be better off if you arranged for your trade to be more equal with each of your trading partners? Would you enrich yourself and your family, or make yourself more economically secure, if you start purchasing from your employer an amount of goods and services equal to the value of labor that your employer purchases from you? Would your economic prospects improve if you manage to sell to your supermarket goods or services equal in value to the value of groceries that you purchase from your supermarket? What about selling each to your dentist, your automobile insurer, your internet-service provider, and Amazon.com an amount equal in value to that which you purchase from each? Would you thereby enrich yourself and your family?
Obviously not. You’d find the task of arranging such equality of monetary exchanges with each trading partner practically impossible.
More importantly, you and each of your trading partners would have to forego the enormous benefits of specialization. Because in the bizarre world described just above you’d have no income from your employer left over to spend on the likes of groceries, medical care, or insurance, in order to acquire these goods and services you’d have to spend time producing goods or services that are desired by your grocer, then by your physician, and then by your insurer. You and everyone else would soon be pauperized.
The same logic applies to countries because countries are comprised of individuals. Just as there’s no reason to expect you to have ‘balanced’ trade (as it’s called) with each person with whom you trade, there’s no reason to expect the collection of individuals in any one country, such as the United States, to have ‘balanced’ trade with the collection of individuals in any other country, such as China. And for government to try to compel any such ‘balance’ would reflect a most grotesque economic ignorance while it robs us of material well-being by dramatically reducing international specialization.
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