Sunday, January 30, 2011

Doubling U.S. Exports = Doubling U.S. Imports

Steven Landsburg points to the opening paragraph from Chapter 12 ("The Drive for Exports") in Henry Hazlitt's classic book "Economics in One Lesson":

"Exceeded only by the pathological dread of imports that affects all nations is a pathological yearning for exports.  Logically, it is true, nothing could be more inconsistent. In the long run imports and exports must equal each other (considering both in the broadest sense, which includes such “invisible” items as tourist expenditures, ocean freight charges and all other items in the “balance of payments”).  It is exports that pay for imports, and vice-versa. The greater exports we have, the greater imports we have, if we ever expect to get paid.  The smaller imports we have, the smaller exports we can have.  Without imports we can have no exports, for foreigners will have no funds with which to buy our goods. When we decide to cut down out imports, we are in effect deciding also to cut down our exports. When we decide to increase (double) out exports, we are in effect deciding to increase (double) our imports."

Professor Landsburg points out that "Encouraging exports is exactly the same thing as encouraging imports. And wouldn’t you expect that if you were out to encourage imports, your first step might be to stop discouraging imports, say by declaring an end to all tariffs and quotas on foreign-made goods? In a sane world, that’s indeed what you might expect. But somehow I don’t expect it."

Another thing that might happen in a sane world would be for Obama to push for finalizing the free trade agreements (FTAs) with Colombia and Panama, which Obama claims to support.  The Colombia FTA was signed in 2006, and languishes into its sixth year without getting final approval from Congress.  According to the Latin America Trade Coalition, more than $3 billion in tariffs have been imposed on U.S. exports to Colombia in the 1,531 days since the FTA was signed, but not finalized.  Under the FTA, most tariffs would be eliminated, and the U.S. could boost trade with a country that now has finalized FTAs with both Canada and Europe. 

18 Comments:

At 1/30/2011 11:33 AM, Blogger Rufus II said...

No, the Chi-coms loan the money to our government to waste on non-productive, elite-enriching enterprises.

Then, at some point, when our industry is decimated, and we owe them more than we can repay, they "call the note."

And, of course, being unemployed, our people can't pay it, or borrow more.

The economic term for this is "Curtains."

 
At 1/30/2011 12:24 PM, Blogger Michael said...

On a positive note, the government can always print the money for the note and we can go back to bartering with chickens.

 
At 1/30/2011 12:29 PM, Blogger PeakTrader said...

The article states: "In the long run imports and exports must equal each other."

A Japanese can exchange a new Toyota for a new Ford today or can wait and earn zero percent interest to buy the 2011 Ford (or something similar) in 20 years.

However, what'll likely happen is the Japanese will effectively earn less than zero percent interest (after inflation and currency exchange rates) and receive a $5,000 U.S. biotech drug in 20 years in exchange for the $20,000 Toyota sold today.

Or the Japanese may sell his or her assets, exchange yen for dollars, and retire in Hawaii, etc.

 
At 1/30/2011 12:35 PM, Blogger PeakTrader said...

Rufus II, the economic term for that is Obamanomics.

 
At 1/30/2011 12:54 PM, Blogger Ron H. said...

Rufus,

Aren't you blaming the wrong culprit here? Would you blame your bank for your level of debt because they allowed it?

And, if "our people" can't pay the debt, what's the problem? What effect does "calling the note" have"

Michael has offered one solution, but it isn't one I believe many except Benji
would approve of.

 
At 1/30/2011 12:55 PM, Blogger Buddy R Pacifico said...

"Exports pay for Imports".

Ok, I buy that. We have had massive trade deficits with China the last decade (duh). As the most advanced economy in the universe, the #1 U.S. export to China is: Oilseed products led by soybeans (2009 U.S. taxpayer subsidy of $1.9 billion).

In 2009, the last available year for compiled reports, steel and iron scrap led export growth to China at a 36% increase. Exports, that pay for Chinese imports into the U.S., are skewing to Third World classification.

High-Tech and creative products are shut out to a great extent becuase of lack of or lax intellectual property (ip) protection. Without IP protection in export markets, the U.S. marches mindlessly to feudalism and sharecropping.

 
At 1/30/2011 2:27 PM, Blogger PeakTrader said...

The U.S. is rich in natural resources.

Also, if reverse engineering works so well, why aren't the Chinese building Toyotas?

Moreover, a worker earning $3,000 a year can't buy the same goods, or the same quantity of goods, as someone earning $45,000 a year (comparing a hard currency at world prices instead of PPP).

Top U.S. Exports to China 2009

Electrical machinery and equipment.
Oil seeds and oleaginous fruits.
Power generation equipment.
Air and spacecraft.
Plastics and articles thereof.
Optics and medical equipment.
Iron and steel.
Pulp and paperboard.
Organic chemicals.
Vehicles, excluding railway.

 
At 1/30/2011 3:25 PM, Blogger Buddy R Pacifico said...

Peak Trader, the information I have is that Oil Seed products (mostly soybean) were the number one export to China by the U.S. in 2009. The source is the U.S. International Trade Commission and is here. The rest of your ranking is correct.

 
At 1/30/2011 3:50 PM, Blogger Michael said...

Why are we sending steel to China only to import steel from China?

 
At 1/30/2011 4:32 PM, Blogger Ron H. said...

Michael,

"Why are we sending steel to China only to import steel from China?"

The short answer is that it's cheaper than reprocessing it in this country.

 
At 1/30/2011 9:12 PM, Blogger Craig said...

I am an inveterate free-trader, but in an age of fiat currency, I have to say that this is all buncombe.

Now, it's true that, in order to buy something, I must first sell something. But where I sell it or where I buy from doesn't matter.

If, for example, I sell a cord of firewood (cut from my woodlot) to my next door neighbor in upstate New York, I may use the proceeds to purchase goods made in New York or China. It's true that I will have to exchange my dollars for Yuan to complete the deal, but that's a quibble.

It's technically true that exports pay for imports, but it makes no economic difference to me if those imports come from Buffalo or Shanghai. It makes no difference to the nation either.

 
At 1/30/2011 9:36 PM, Blogger Michael said...

So China cuts steel like a dealer does coke. Nice

 
At 1/30/2011 9:37 PM, Blogger Benjamin said...

Ron H-

You are right. Bernanke should print money until the plates melt, pop the corks, tip the barrels over, set the whole damn house on fire.

Take away the punch bowl? Oh, hell no--Bernanke should spike the bowl with caffeine, crank, uppers, crack, booze and everything else, and declare open bar.

Ron H. did you see the GDP deflator for fourth q? No inflation. Inflation is dead, deader than a Jack Benny joke at a Hell's Angel's sex and drug orgy.

Milli Vanilli has a better chance of a comeback than inflation.

 
At 1/30/2011 9:47 PM, Blogger Ron H. said...

This comment has been removed by the author.

 
At 1/30/2011 9:53 PM, Blogger Ron H. said...

"So China cuts steel like a dealer does coke. Nice""

Michael,

I don't understand what you mean by that. You asked why we are sending steel to China only to import steel from China, and my comment was that reprocessing scrap steel into new steel is cheaper in China than in the US, including shipping both ways.

 
At 1/30/2011 10:26 PM, Blogger Michael said...

Ron, I thought you meant we were making the steel here, send it to China for final processing and bring it back.

Ben, got tickets to Milli Vanilli. I keep having to raise prices because my materials keep costing more.

 
At 1/30/2011 10:28 PM, Blogger Michael said...

You could take the coke snark a number of ways. I do remember Bush filing a WTO complaint about China not exporting enough Coke. Like the US is short on coal or a need for jobs.

 
At 1/31/2011 12:47 AM, Blogger Benjamin said...

Michael-

Factory space in Los Angeles running about one-third less than a few years back. If you know where to look, lots of deals on materials.

Things are coming back, but slowly. The lack of inflation does not mean every price is stable. Only that overall, we are in a mildly deflationary environment, and that is very destructive to investors and ultimately, the economy.

Japan is an object lesson on what tight money means. It means a slow death for your economy.

 

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