PAGING DICK GEPHARDT

In Defense of "Trade Deficits": A nation isn't harmed when it imports more than it exports, which is why the trade deficit is the most dangerous statistic collected by government. (Daniel J. Mitchell, March 22, 2003, Capitalism Magazine)

It is people who trade, not countries, and people trade because it makes them better off. This is true if someone in Virginia trades with someone in Maryland, and it is also true if someone in Kansas trades with someone in Singapore.

Protectionists usually will admit that free trade is a good idea, at least in theory, but then argue that the "trade deficit" shows there's an imbalance that must be corrected. Yet, they offer no evidence for this hypothesis. I have trade deficits with my local supermarket, movie theater and gas station: I buy lots of things from them and they never buy anything from me. Why is that bad? Should politicians and bureaucrats be allowed to limit my freedom to make these purchases in order to "protect" me from a trade deficit?

The same analysis applies to the overall economy. At any given point in time, Virginia may have a trade deficit with Maryland and the United States may have a trade deficit with Germany. But these deficits are merely the result of millions of voluntary transactions between producers and consumers. And unless we're willing to assume that people are idiots, those transactions benefited both buyers and sellers. Would these people be better off if politicians and bureaucrats used quotas and trade taxes to hinder trade?

The evidence clearly says no. The 1930 Smoot-Hawley legislation was supposed to protect American jobs, but instead it helped cause record unemployment and the Great Depression. Countries today with high trade barriers - like Japan - suffer from anemic growth, while free-trade jurisdictions prosper. Unfortunately, protectionists won't heed economic arguments. They seem convinced that a trade deficit is like cancer, something that's always bad news.

How can it still be necessary to convince people that freer trade is good for economies? Posted by Orrin Judd at July 31, 2003 7:45 AM