Wilbur Ross, Secretary
United States Department of Commerce
Washington, DC
Sec. Ross:
In your recent Wall Street Journal op-ed (“Free-Trade is a Two-Way Street”) you complain that “When it comes to trade in goods, our deficits with China and the EU are $347 billion and $146.8 billion, respectively.” Can you explain what on earth is the relevance of a deficit in our country’s “trade in goods”? Why should we worry about such a thing?
MD: Probably for the same reason that if you make trading promises assuming X amount of income to delivery … and realize less than that amount of income … you’re going to default on your trading promises. That’s why!
Do you believe that a physician – who earns income by supplying an output classified as a service – suffers economically because, when it comes to trade in goods, he has a “deficit” with supermarkets, department stores, and hardware stores?
MD: Eventually those suppliers suffer … and you can be sure they’re going to try to get a pound of flesh out of him as a result.
Do you believe that a town that is home to many physicians suffers economically because, when it comes to trade in goods, that town has a “deficit” with towns that are home to lots of farmers, carpenters, and welders?
MD: All these questions without defining deficit? When it comes to individual traders we talk about defaults … not deficits. And defaults are bad. Deficits are defaults waiting to happen … but they do no damage until they become defaults.
Assuming that your answer to each question is “no,” why do you assume that the United States – which is overwhelmingly home to people with comparative advantages at service-sector tasks such as IT innovation, pharmaceutical research, higher education, and financial services – suffers economically because, when it comes to trade in goods, we have a “deficit” with countries that are home to people with comparative advantages at producing tangible items such as shoes, shirts, and roofing shingles?
MD: None of that means anything if it doesn’t trade for something. It’s like having a field full of bulldozers. If they’re not moving dirt, they’re not earning their keep.
Asked otherwise, can you tell me the difference between a dollar’s worth of IT innovation and a dollar’s worth of socks?
MD: Really none if both are sitting on the shelf.
When Americans produce and export a dollar’s worth of IT innovation and receive in exchange a dollar’s worth of socks, you must lament this reality because it increases our “deficit” in the trade of goods.
MD: Someone doesn’t understand trade. When you trade something, you get something of equal perceived value in return … done deal.
So would you be happier if Americans instead specialized more in producing socks and left it to others to specialize in IT innovation?
MD: If socks were selling and IT innovators were sitting twiddling their fingers, you bet!
Such a change in production patterns would, after all, result in America having, when it comes to trade in goods, a surplus! Can you explain how we Americans would be better off with such an outcome than we are today with our “deficit” in the trade of goods?
MD: All macro accounting is fiction. The real accounting is for the traders themselves. Today I traded with the Chinese some dollars (my stored up trading surplus) for some amazing electronic circuits … at an amazingly friendly price. I couldn’t trade for those circuits in the USA. The government can go pound sand.
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030