Thursday, February 22, 2007

People Trade, Not Countries

It might be a convenient expression to say that the U.S. trades with Japan, but is it literally true? Is it the U.S. Congress and President George Bush who trade with the National Diet of Japan, the Japanese legislature and Prime Minister Shinzo Abe? Or, is it U.S. and Japanese private parties, as individuals and corporations, who trade with one another? When I purchased my Lexus, did I deal with the U.S. Congress, the Japanese Diet, George Bush and Shinzo Abe, or did I deal with Toyota and its intermediaries?

From George Mason economist Walter Williams'
most recent column.

MP: Walter Williams makes an obvious, but often overlooked point, that individual American consumers and individual U.S. companies buy imported foreign products, and private U.S. firms sell and export products and services to private foreign consumers and private foreign companies. When we hear all of the media hysteria about the "U.S. trade deficit" with the rest of the world, or with individual countries like China or Japan, we lose sight of the fact that it was voluntary, individual decisions on a daily basis in the marketplace by U.S. consumers and firms that led to the trade deficit.

Look at the tags and labels on your clothing, and you'll find that you voluntarily purchased clothing produced by workers and private firms in China, Mexico, India, Brazil or Bangladesh, etc., which contributed to the "trade deficit" with those countries, but obviously made you better off. Or if you took a vacation to Canada, Mexico or Europe, that contributed to the "trade deficit" with those countries, but made you better off.

Bottom Lines: 1) People trade, not countries and 2) Restrictions on trade are restrictions on people.


At 2/23/2007 12:05 PM, Blogger Gem Hudson said...

When we can only count our economics in consumer confident, we are hurting on the supply side of money making.

At 2/25/2007 9:47 PM, Blogger LEB said...

Mark, you make a very interesting point in your blog: restrictions on trade are restrictions on people. It is obviously true that we all contribute to the growing trade deficit in the United States by being so willing to buy goods made in other countries. I am personally a big supporter of textile imports: I buy clothes brands from other countries, and I buy from U.S. companies that outsource their labor in other geographies, such as Nike, to name one well-publicized example.
It is also clear that our imports and exports need to be more balanced than they are today in order to avoid an economic disaster in the future. The gap just cannot grow forever. But heavy-handed trade restrictions are not logical either. Is there a way to manage the trade gap and still avoid the consequences of protectionism and unrestricted free trade?
The devil is in the details, but only after the trade gap is significantly reduced. In the short-term, the United States needs to impose strong restrictions on trade because it needs to get itself out of the huge deficit hole that it has created and stop the momentum. That calls for protectionist policies. No one will be happy: trade partners will cry foul, and Americans will be hit with higher prices on a wide range of personal items, considerably reducing discretionary spending and potentially slowing our economy as a whole. But trade restrictions are required to right the ship and quickly close some of the trade gap. Ultimately, in the long-run, the United States’ deficit demands a more delicate hand, similar to the way the Fed handles interest rates to mange inflation: a little adjustment here, a little there, and nothing gets too far out of whack.


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