Here’s a letter to a Facebook commenter.
Mr. McNicoll:
Commenting on Jeff Singer’s Facebook page, you unjustifiably call Reason’s Billy Binion a “moron.” You level this uninformed accusation at Binion because he points out that Trump is as clueless to complain about the so-called U.S. “trade deficit” with each of many individual countries as would be an individual American to complain about her “trade deficit” with a supermarket. In fact, the supermarket example is a correct and clear way of exposing the fallacy of Trump’s economics. Yet rather than recognize this fact, you resorted to name-calling.
Name-calling is easy and childish. Making a credible argument requires thought and maturity. So I challenge you to act like an adult and offer a credible argument in response to the following:
In an economy of more than two entities – more than two individuals, firms, towns, states, or countries – there’s absolutely no reason to expect any pair of these entities to sell to each other the same amount as they buy from the other.
Suppose, for example, that the world had only three countries: the U.S., Canada, and Brazil. Suppose further that in this world the U.S., each year, imports from Canada $1M of maple syrup, paying in U.S. dollars. The Canadians then use those U.S. dollars to buy $1M of coffee from Brazil. The Brazilians, in turn, use those U.S. dollars to buy $1M of corn from the U.S. There are (for simplicity) no other international transactions.
In this example – if Trump is correct – Canada is “ripping” America off, for the U.S. has a so-called “trade deficit” of $1M with Canada. Also if Trump is correct, were he as president to stop Americans from trading with Canada, we Americans would lose nothing; indeed, we’d gain $1M.
Do you think that Trump is correct? If so, show your work – work, by the way, that would also reveal that, according to Trump’s logic, the U.S. in this example is “ripping off” Brazil to the tune of $1M annually.
Note that if we now allow also for foreigners to invest some or all of their U.S. dollars in the U.S. instead of spending them all on U.S. exports, the absurdity of Trump’s ‘argument’ is only magnified.
Billy Binion is perfectly justified in using the supermarket example, for there is no essential difference that separates one individual’s “trade deficit” with a supermarket from one country’s “trade deficit” with another country.
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
