07 May 2018

Free Traders Should Be More Careful When Defending Trade Deficits

Economics, Shameless Self-Promotion, Trade 9 Comments

In a recent WSJ piece, Robert Barro pushed back against Trump’s mercantilism by arguing: “Imports are things we want, whether consumer goods, raw materials or intermediate goods. Exports are the price we have to pay to get the imports. It would be great, in fact, if we could get more imports without having to pay for them through added exports.”

Now this is a typical argument in the free-trade camp; I’ve used variants of it myself. But lately, something has been bugging me about it. When I saw the way Barro’s argument misled the WSJ editor who (?) wrote the title and subtitle, I put my finger on it.

So, here is the title along with the offending (I claim) subtitle:

Trump and China Share a Bad Idea on Trade
Imports are things we want, and we pay for them with exports. Isn’t getting more for less a good thing?

If you want to see what’s the problem with that, go read my latest blog post at the Independent Institute.

9 Responses to “Free Traders Should Be More Careful When Defending Trade Deficits”

  1. Jan says:

    Interesting point. Both parties always pay the full price yet they both still win. At least ex ante.

  2. Tel says:

    Proverbs 22:7 : The rich rule over the poor, and the borrower is slave to the lender.

    Robert Barro ignores the question of debt.

    Another proverb (not sure who said it first) : “Deficits Don’t Matter – Until They Do”

    • Bob Murphy says:

      Good one Tel! Also Dt. 28:12: “The Lord will open to you His good treasure, the heavens, to give the rain to your land in its season, and to bless all the work of your hand. You shall lend to many nations, but you shall not borrow.”

      • Tel says:

        You know I’m not much of a believer in the whole God thing, but I am a believer in the tautological observation of Evolution: what works is generally what sticks around for a long time, because if it didn’t work it would have been thrown away already.

        So the way these old proverbs keep hanging around and finding new relevance every generation tells you there’s something worth looking at. All the religions have struggled over how to handle debt, not all coming to the same conclusions, but the issue cannot be ignored either.

        • Harold says:

          It is an important distinction that evolution is not a tautology. What is successful sticking around does not lead to evolution. It is only one part of the theory.

    • guest says:

      (Disclosure: I haven’t read the articles.)

      It’s important to note that there’s a distinction between a trade deficit and a debt.

      You have a trade deficit with most (all?) of the stores you shop at, and yet you’re all doing fine.

      This is a point that someone should raise to Peter Schiff, already.

      The reason our trades with China are bad for us (in the long run) isn’t because we buy more from them than they buy from us, but because we’re “paying” with counterfeit money.

      Effectively, we’re paying for our goods with debt – but that’s not a description of a trade deficit.

      • Tel says:

        Debt is the accumulation of many individual deficits over time.

        Who cares about one store? It’s the overall balance that matters. Here’s some graphs to help:


        So the area between zero and that graph is accumulated debt, and you can see that the USA has never produced a trade surplus for three decades. That’s not sustainable. Even once you adjust for NGDP (which is mostly an inflation adjustment) and you add services (which makes a tiny difference) it’s still all negative.

  3. trent steele says:

    The only way any of this goes wrong, then, is if the Chinese ever want to cash in those T-bills.

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