With the recent demonstrations against international trade in Windsor,
Canada, and Washington, D.C., not to mention the violent protests in
Seattle, one might get the impression that trade — particularly trade
imbalances or deficits — is evil. Let’s look at it.
I go to my grocer and buy $100 worth of merchandise from him. Should I or
anyone else be upset? You say: “What’s the beef, Williams? People do that
every day!” Yes, but can’t you see there’s a trade imbalance? I buy more
from my grocer than he buys from me. That’s just as bad as the Japanese.
Americans buy more from the Japanese than they buy from us. Shouldn’t
Congress step in to do something about the Williams/grocer trade imbalance?
Actually, there’s no more of a trade imbalance between my grocer and me
than there is between the citizens of Japan and U.S. citizens. Here’s the
story about my grocer and me. Prior to entering his store, there was $100 in
my capital account (money) and zero in my current account (goods). After the
grocery purchase, my capital account fell by $100, but my current account
rose by $100. My account is balanced. What happened to the grocer’s
accounts? When he sold me the groceries, his capital account rose $100 and
his current account fell by $100. His account is also balanced.
Here’s a question for you. Would the essentials of this transaction be
any different if, instead of making purchases from the grocer down the
street, I made purchases from a grocer across town? What about in another
county, another state or another country? Your answer ought to be: There’d
be no trade imbalance no matter where transactions are made.
Why do people trade anyway? The only answer has to be: both parties to
any voluntary exchange benefit. I value the $100 worth of groceries more
than keeping the $100 in my pocket. Similarly, the grocer values getting the
$100 more than keeping the groceries. But if everyone gains from trade, how
come tariffs, quotas and embargoes and other trade barriers are erected? The
simple answer is that trade barriers permit the few to gain advantages at
the expense of the many.
For example, my grocer and his employees might want higher profits and
wages. They might create a political action committee to lobby and make
campaign contributions to Pennsylvania legislators in an effort to get
restrictions against Pennsylvanians shopping for groceries in New Jersey and
a ban on New Jersey grocery imports. That way, Pennsylvanian grocers could
charge higher prices, allowing them and their employees to earn higher
profit and wages. Clearly, they would benefit. Pennsylvanian grocery
shoppers would lose.
Politically, the grocery lobby couldn’t get away with those restrictions
if they made their true agenda known. They’d have to conjure up something
for public consumption. They might sponsor advertisements saying things
like: “New Jersey’s human rights record is despicable. Look at how they
treat their children and pets. They don’t enforce seatbelt laws. Their
senior citizens have to choose between food and having prescriptions filled.
Plus, we just want a level playing field.”
Any excuse for the restrictions will do except one: We want to prevent
New Jersey groceries from coming into Pennsylvania so we can charge higher
prices and earn greater profits and higher wages. Rarely, and understandably
so, do we see coalitions of consumers lobbying for trade restrictions and
against lower prices.
If the political jurisdictions such as Pennsylvania and New Jersey used
in my example were changed to Japan, England, Russia and, yes, China, the
essentials of the argument wouldn’t change one iota.