The next time you hear someone talk about boosting exports while restricting imports, remember: It’s like trying to fill a bucket with water while simultaneously punching holes in the bottom. There are two sides to trade—the imports that enrich our lives and lower the costs of production, and the exports that pay for them. There is a tight connection between exporting and importing, so protective tariffs will not fuel the manufacturing renaissance or export boom that modern protectionists want.
This economic reality punctures the myth of export-led growth. The Lerner symmetry theorem tells us that subsidizing exports is equivalent to subsidizing imports because of general-equilibrium effects working through the exchange rates and relative prices. In particular, when a country implements export subsidies, exports will initially become more competitive, increasing foreign demand for subsidized goods. This increased demand for exports leads to an appreciation of the domestic currency as foreigners need more of it to buy the subsidized exports. The stronger currency then makes imports relatively cheaper for domestic consumers and firms, thus offsetting the growth in exports.
Trade liberalization, and especially the lowering of import taxes, offers a better path to becoming an exporting powerhouse. Indeed, China’s global trading transformation began with aggressive tariff reductions in the early 1990s. As Bryan Riley of the National Taxpayers Union pointed out recently, when China initiated major trade reforms in 1992, its average import tariff rate stood at approximately 32 percent. By 2020, China’s average import tariff rate had declined to approximately 2.5 percent, though, as it is in nearly all countries, specific rates varied significantly across different sectors and products. Notably, tariffs on industrial inputs and machinery saw particularly steep declines to support domestic manufacturing, while some agricultural products maintained higher protective tariffs.
According to Scott Lincicome and Arjun Anand’s essay, “The ‘China Shock’ Demystified: Its Origins, Effects, and Lessons for Today,” lower tariffs on imported materials and components allowed Chinese manufacturers to access higher-quality inputs at competitive prices, significantly improving their export competitiveness. Also, the increased exposure to foreign competition and technology forced domestic firms to innovate and improve. As imports dramatically increased, foreign direct investment and exports grew. Chinese exports increased from $85 billion in 1992 to over $2.5 trillion by 2020. Manufacturing became increasingly sophisticated, with China moving up the value chain from producing simple textiles and toys to manufacturing complex electronics, machinery, and high-tech products. As Riley states, “China’s share of global manufacturing increased from 5% to 35%,” transforming China into the world’s largest exporter.
But crucially, China’s lower tariffs facilitated more imports, which in turn led to more exports and foreign direct investment in China. It’s not the other way around: China did not increase its wealth simply by producing things and shipping them abroad. The exports that are said to have led to China’s growth contributed to it only by bringing in imports and foreign capital. It is therefore no less accurate to say that China’s growth was led by imports and foreign investment than it is to say that its growth was led by exports. Exports are a means of acquiring imports and foreign capital.
The US has a massive trade deficit in current Major League Baseball (MLB) players. It exports only a handful of players abroad (the number of Americans who happen to be on the Toronto Blue Jays) but imported 28 percent of MLB players in 2024. In fact, the percentage of MLB players from foreign countries has been in the high 20s for most of this century.
The Dominican Republic supplies the highest number, 108 of the 264 foreign-born MLB players in 2024. Second and third are Venezuela and Cuba, with 58 and 18 players, respectively. Both are communist countries and enemies of the United States. To the extent that anyone views this as a national security problem, it’s the Venezuelan and Cuban governments, who are afraid of players defecting.
Contrary to arguments for fair trade, MLB teams have worked quite intentionally to make player development in the Dominican Republic unfair to other countries. All 30 MLB teams have established academies in that country where boys train and are paid at much higher rates than ordinary workers to become professional baseball players. These aspiring pros are low paid by American standards, but few Americans complain or brand the academies “sweatshops.”
One might object that of course Americans are happy to accept MLB players from abroad because a supermajority of players are born in the US. The economy at large has been “hollowed out” by international trade, the story goes. But the proportion of MLB players from other countries, 28 percent, is double the proportion of the US economy that comes from imports, which is 14 percent. Has MLB been hollowed out by Shohei Ohtani, Ronald Acuña Jr., and all the other foreign players? Has it been hollowed out twice as badly as the US economy overall? Or are fans simply grateful to watch these gifted athletes play?
There’s another aspect of popular acceptance of foreign-born athletes that goes against populist economics. Populists often appeal to what economists call the lump of labor fallacy, which holds that the labor market is zero-sum. That means one person’s getting a job denies a job to someone else because there is a fixed amount of labor to do. When someone talks about immigrants “taking our jobs,” they are appealing to the lump of labor fallacy.
It’s a fallacy because it’s based on a false premise. In a real economy, the amount of labor is never fixed, and it expands to satisfy consumers’ desires. Employment is not zero-sum.
You’d be hard-pressed to find a fan who argues that foreign-born MLB players should be curtailed because they take jobs from American players. People who do, such as Phyllis Schlafly in 2016, are generally seen as cranks. Some people might argue against their favorite team signing a foreign player. They might say the team is overpaying, or that there is some other player they want the team to sign instead. But they’ll basically never object to a player’s signing based solely on his nationality. In fact, if someone did raise such an objection, they’d probably get made fun of by other fans.
Brian Gross’s letter in today’s Wall Street Journal is excellent:
So much for getting Washington out of education. The White House’s new compact is central planning in academic dress: dictating who colleges admit, what they charge and what professors may say (“Trump Asks Schools to Sign Funds Pact,” Page One, Oct. 2).
That isn’t a “marketplace of ideas”—it is a government speech code. Once Washington claims this power, the rules will swing with politics. Today an administration caps foreign students, the next may require more, and so forth.
Higher education has always thrived on independence and competition, not government loyalty oaths. If ideas need a permission slip from Washington, they’re no longer free.
Brian Albrecht applauds this year’s Nobel Prize in economics award. A slice:
Suppose one had to summarize Mokyr’s career-long contribution in a sentence. In that case, it might be: Sustained economic growth stems from systems that continuously generate, diffuse, and apply useful knowledge, and those systems require specific cultural and institutional prerequisites that are neither natural nor automatic.
This might sound abstract, but Mokyr’s genius lies in making it concrete through rich historical detail.
Also applauding this year’s Nobel Prize in economics award is Arnold Kling.
GMU Econ alum David Hebert explains “what Hamburger Helper knows and GDP misses.” A slice:
To help cut through the noise, we can look to other, less obvious sources combined with economic theory. The New York Times, for example, reports that Hamburger Helper sales have risen 14.5 percent just since the start of the year. The theory is that Hamburger Helper sales are loosely correlated with economic recessions; when Hamburger Helper sales rise, it is a sign that consumers might actually have less disposable income and are seeking to stretch their money as far as possible.
Hamburger Helper is far from the only fabled example of quirky statistics that economists use to clarify our supposed crystal balls that allow us to peer into the future. Warren Buffet famously popularized the “men’s underwear index,” reasoning that men are more likely to buy underwear only when flush with cash, which happens during a boom. The Baked Beans Index, similar to the Hamburger Helper theory, suggests that baked bean sales spike during a recession.
The reason behind this is straightforward according to economic theory: these goods, and plenty of others, are often characterized as inferior goods. Here, “inferior” does not necessarily mean “of low quality.” Instead, it refers to the idea that when a person’s income rises, their demand for any given product will change. For inferior goods, income and demand move in opposite directions: when one increases, the other decreases. For so-called “normal goods,” like beef, fresh vegetables, and new cars, income and demand move in the same direction: when one increases or decreases, the other moves in the same direction.
