Here’s a letter to a long-time hostile reader of Café Hayek:
Mr. McKinney:
Thanks for sending Michael Pettis’s tweet proclaiming that “free trade is both fair trade and balanced trade. The problem is that the world we live in is not remotely one of free trade. It is a world in which trade is dominated by beggar-thy-neighbor trade policies.” In this tweet you find “considerable merit.”
With respect, I find in it considerable demerit.
Beware when someone insists that trade is free only if it’s both “fair” and “balanced.” This person is using words with lovely sounds but distorted content to petition for government to restrict individuals’ freedom to spend their incomes as they choose. I can think of no instances of “fair trade” other than trades that are unimpeded. All such trade, because it is voluntary, is fair. What’s unfair is what Pettis desires – namely, government using tariffs to penalize your and my purchases of imports. Trade restrictions give domestic producers unfair economic power over their fellow citizens.
As for “balanced,” Pettis has long complained about America’s so-called “trade deficit” – an accounting artifact that he mistakenly believes is a sign of imbalance. In fact, a U.S. trade deficit (more accurately, current-account deficit) means nothing more than that Americans’ trade with foreigners is balanced out not by foreigners exclusively purchasing American exports but, instead, by foreigners purchasing American exports and also investing in America. When net inflows from abroad of capital are accounted for, the trade accounts are balanced. Please ask Pettis to explain why we should be begrudged or bewail foreigners’ continued eagerness to invest in America.
Finally, by “beggar-thy-neighbor trade policies” Pettis refers to efforts by foreign governments to try to arrange for their citizens to export as much as possible and to import as little as possible. But, pray tell, how does producing artificially large quantities of goods and services to ship out of the home country, and then artificially restricting the quantities of goods and services that enter the home country, enrich the home country and impoverish other countries? Common sense (and sound economics) reveals that such policies impoverish the home country as they enrich other countries. What Pettis calls “beggar-thy-neighbor trade policies,” therefore, are more accurately described as “beggar-thyself trade policies.” That he doesn’t understand this simple reality is reason enough for you to severely discount all that he writes or tweets about trade.
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
