Here’s a letter to the Wall Street Journal.
Editor:
Writing about U.S. trade deficits, Greg Ip declares that “by exporting so much, China effectively forces its trading partners to run deficits” (“The Global Economy Is Threatened Again by Trade Imbalances,” June 12).
Wrong.
U.S. trade deficits occur whenever foreigners sell more to us than they buy from us, with the difference being made up by net inflows of foreign investment funds into the U.S.
So why do the Chinese sell us so much? Every good that Americans buy from China is bought voluntarily by Americans, implying that American purchasers obviously find the prices and qualities of Chinese goods to be attractive. Unlike in Mr. Ip’s unintentionally demeaning portrayal of Americans, in reality we Americans are no more “forced” to buy goods from China than we are “forced” to buy goods from supermarkets.
And why do the Chinese (and other non-Americans) not buy from us as much as we buy from them? The answer is straightforward: Foreigners are especially keen to invest in America. Because they need dollars to carry out their investments, foreigners cannot spend all of their dollars buying American exports. The result is U.S. deficits.
U.S. trade deficits aren’t caused by “overproduction” abroad but, instead, by America continuing to be both an attractive market for foreign merchants to offer their wares to us on easy terms and a place that promises relatively high returns on invested capital.
Would Mr. Ip care to explain why these qualities of America are ones that we should lament?
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
