Exports and Imports Move in the Same Direction

Tweet

Here’s a letter to a commenter at my Facebook page.

Mr. Beveridge:

In a comment on this Facebook post of mine – a post in which I criticize Trump’s tariffs – you write that my post “seems to ignore the fact that we are tariffed to the max by other countries. What gives, sir?”

Other readers’ several responses to your comment do much to remedy your misunderstanding – for example, by noting that we are not, and we were not, “tariffed to the max by other countries.”

But another point is worth making. If (also contrary to fact) Trump and his fellow protectionists are correct to incessantly insist that free trade harms the American economy by “hollowing out” our industrial base and making us dangerously dependent for supplies on foreign countries, then other countries would do us a great favor by tariffing us “to the max.”

Extremely high tariffs abroad would dramatically reduce demand for American exports. This reduced demand for American exports would, in turn, reduce the global demand for U.S. dollars. As a result, the value of the dollar against other currencies would fall. As the dollar’s value falls, it takes more dollars to buy any given amount of foreign currency – meaning that, as the dollar’s value falls, foreign goods would become more expensive for Americans to purchase. Americans would import less.

In short, as American exports fall, so too would American imports.

Being tariffed to the max by other countries would achieve Mr. Trump’s and other protectionists’ goal of reducing America’s imports and her ‘dependence’ on foreign countries for supplies. It’s unclear, therefore, why protectionists complain about (what they falsely believe to be) differentially very high foreign tariffs.

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

P.S. For a more comprehensive treatment of the connection between imports and exports, see here. I also recognize that my conclusion assumes that extremely high tariffs abroad would not raise foreigners’ demand to invest in America by so much as to offset the foreign-tariffs’ depressing effect on the value of the dollar. If this assumption were to prove unjustified in reality, however, the other Trumpian bête noire – U.S. trade deficits – would grow even more bête noire-ish.