Friday, January 10, 2014
Imports, Exports, and Trade: Oh, My!
We here at Beards of Fury have our fans. On a different note, the country is full of citizens who don’t quite understand economics. And it’s also full of people who really don’t understand international trade. There are people who think mercantilism, where buying locally, or only American, where exports are preferred over exports and money is kept locally, brings about the wealth of the nation, even though Adam Smith debunked that idea way back in 1776. So, when fans ask for some knowledge, they get it. Here, I present to you, what really goes on with international trade.
Imports always equal exports: Sometimes people hear the phrase “negative trade balance.” This means we, as a country, import more than we export. Because the word “negative” is in there, people think it must be bad. However, here’s the thing: imports equal exports, and vice versa. You see, when you want that new TV built in China, you pay with American dollars. The Chinese can’t pay their workers in our currency, nor taxes, or purchase local goods and services. So, they turn around and buy American products. Or, they may invest in American businesses, allowing the company to pay workers or purchase capital. That’s why we see a “negative trade balance;” the government doesn’t record the investment, but either way the money comes back to us. Imports always equal exports.
Buying locally has unintended consequences: The phrases “buy locally” and “buy American” are heard time and again. Why? Because mercantilists think wealth is obtained by keeping money in the country and grows an economy. But, if you think about it, if every country believes exports should exceed imports, and buy local, then nobody’s exporting anything, completely defeating the policy. If you think about even more, “buy American” is no different from “buy Chattanooga” or “buy Tennessee.” If the climate isn’t right and the land not suitable for producing oranges, thus making them expensive anywhere in Tennessee, but the reverse in Florida, then buying oranges from Florida leaves you with more money. To buy more stuff. Meaning you have more wealth. As Lew Rockwell says about the people who push to buy local: “Actually, what they are doing is raising the prices of consumer products, harming opportunity for workers to find good employment, hindering growth of economies in the developing world, and inadvertently serving as foot soldiers for the mercantile interest groups that seek to shield themselves from more efficient but foreign competitors.” The unintended consequences abound when you “buy local.”
Free trade is freedom: If you’re free, that means you make choices (whether they’re intelligent choices is not a matter of economics or politics). When you’re told what you can buy, where you can buy it, and at what price you will buy it means you’re not free. If Japan makes, in my opinion, better and cheaper widgets, then the government has no business telling me I cannot buy them. Now, the devil’s advocate may say, “You’re free to buy from anyone, anywhere.” Well, when the government puts quotas and tariffs on foreign goods, raising their prices, meaning the American version, which was more expensive is now cheaper, means the government is giving you the illusion of choice. Why does the government get a say in how I shop?
International trade is not complex. Is there more to this international trade? Yes, but what you just read is international trade in a nutshell. In fact, the word “international” is not needed. Trade is trade. Whether it’s with the butcher in your city, the mall in the next county, the theme park in the next state, or the business in a different country. Erase all of those borders in your mind and find the product you want at a price you like.