Americans' ability to exchange dollars for a rich assortment of goods from all over the world is a sign of economic vitality and success, not desperation.
READY OR NOT, here comes a new attack of dyspepsia over America's annual trade deficit.
The grumbling began in March, when the Commerce Department reported that imports for 1997 had exceeded exports by $113.7 billion — the largest trade deficit since 1988. This was, it was almost everywhere reported, bad news.
"A sharp deterioration in America's trade performance," the Associated Press called it. The Washington Post headlined the story, "Off balance, and likely to get worse." Lou Dobbs, the host of CNN's "Moneyline," opened his show, "We begin tonight with today's troubling report on trade, a report that showed the nation's trade deficit soared by 24 percent in December." And The Wall Street Journal warned darkly that "1988 could shape up to be an even more dismal year for trade than 1997."
The politicians followed the media. The Senate voted to create an Emergency Trade Deficit Review Commission. "Our trade policies," scolded Senator Byron Dorgan of North Dakota, "are soft-headed . . . weak-kneed . . . incompetently negotiated." When the Senate Finance Committee holds a hearing on the subject later this week, other Capitol Hill protectionists will have even harsher things to say.
Meanwhile, Pat Buchanan is out with a new book, The Great Betrayal, an anti-free trade polemic. "America's merchandise trade deficit . . . is a cancer," he thunders. "Either we cut it out, or it will kill America."
What is it about trade deficits that triggers such bile? For 22 years the United States has run large and expanding trade deficits with the rest of the world. For most of those 22 years, the US economy has rocked. Protectionists glower that trade deficits cost jobs, harm manufacturers, and wreck American competitiveness. They do? Look around! These are myths, disproved by the vigor of the richest and most productive economy on earth.
"Underlying . . . much of the misunderstanding about trade deficits," writes Daniel T. Griswold in a recent paper for the Cato Institute, "is the assumption that exports are good and imports are bad." That is certainly Buchanan's view. He paints international trade as a zero-sum game: Between any two countries, the one that exports the most wins. But if Buchanan and the gloomers are right, if we are losing the worldwide trade war because of the deficits we run with Mexico, Japan, and Germany, why is the American marketplace roaring with good health? And why are the Mexican, Japanese, and German economies gasping with unemployment and stagnation?
Buchanan, Dorgan, and the protectionists they hang out with are wrong. Imports are not a curse on Americans; they are a blessing. Our trade deficit is not a sign of disaster but of strength. They "mean lower prices and wider choice for American consumers," as Griswold writes. And "by exerting downward pressure on prices, imports raise the real wages of American workers."
Imports make our lives better, more efficient, or more comfortable, which is why American consumers and manufacturers want them. The family in Nashville or Sacramento that has a Japanese car in its garage, French wine in its cellar, an Indian rug on its floor, Korean appliances in its kitchen, Canadian salmon in its refrigerator, Italian shoes in its closet, and Kenyan coffee in its pantry may well be running a trade "deficit" with the world. In the give-and-take of international commerce, is this family getting pummeled? Of course not. Its ability to exchange dollars for such a rich assortment of goods is a sign of its economic vitality and success, not desperation.
It is true, of course, and very sad, that the lower price of imports can sometimes put Americans out of work. But slapping tariffs or quotas on foreign exporters in order to save US jobs is always counterproductive. In the 1980s, the Reagan administration sought to protect American auto workers by limiting imports of foreign vehicles. It worked, after a fashion: 22,000 car-manufacturing jobs were saved. But the import quotas drove up the price of a new US automobile by an average of 41 percent. Sales plummeted — and 50,000 automobile sales workers were laid off. The net result of the government's protectionism was the loss of 28,000 jobs, and more-expensive cars.
Trade-deficit fearmongers always want the government to raise prices. Tariffs, import quotas, "Super 301" sanctions, anti-dumping duties — by whatever name they appear, the effect of protectionist measures is always to force up the price Americans must pay for goods and services. Sometimes their effect is open; often it is hidden. Either way, they must fail. No nation can make itself more successful or more comfortable by steadily, stealthily hiking prices.
Remember always: America's balance of trade is not a real economic event. It is only an accounting fiction. International commerce does not occur between nations, it occurs among individuals. "Every international transaction that Americans engage in," Griswold points out, "will by definition leave both parties to the transaction believing they are better off." Otherwise there would have been no deal.
Will we import more than we export this year? Export more than we import? It doesn't matter. So long as we are free to buy and sell and invest across international borders, we are sure to end the year better than we started it.
(Jeff Jacoby is a columnist for The Boston Globe).
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