Tuesday, July 10, 2007

Trade Gap with China is Positive

This may sound counterintuitive, but the trade gap with China is not so bad. Most people believe that it is a negative because they long for an age when products were "Made in America". The longing is based more on nostalgia than economics. Was working in sweatshops for peanuts really the good old days? I say no. Let the low wage, low skilled work go overseas to places where they have the people to fill those jobs. We don't need them here. We have a service based economy which relies more on skills and education.

Secondly, the trade gap misses many knowledge based products. Is a student who comes to an American university and then returns home an export? Yes. Is that counted? No. The same scenario holds true for medical treatment, and some research and marketing (among others). This may account for a small percentage but it is worth mentioning.

Thirdly, our ability to import extremely large quantities exhibits economic strength, not weakness. It is because of our great wealth that we are able to buy in such large quantities. Maybe an analogy will help make the point. Using the logic that the trade deficit is bad then one would also have to believe that a lawyer who lives in a big house with several cars, and a boat is in a bad position because he is buying more than he is selling. He is producing no physical product and only sells his knowledge and abilities. His surplus of products shows his economic strength.

This story today about the record trade deficit with China will no doubt increase calls for protectionist measures which will surely hurt our economy. I wish I could blame this all on the Democrats, after all they are the worst economic demagogues, but many Republicans are going wobbly. I believe that the debacle of a war in Iraq will only increase public support for isolationist policies. This is very unfortunate but regrettably predictable.

1 comment:

BillT said...

This is one spot where we meet and agree on the power of free markets. If low wage, low skill jobs are going overseas, then Americans should be gearing up to provide goods and services to new emerging markets. Sell them the software, luxury goods and materials that they'll crave when they're making more money...

Why fight for jobs on the bottom of the ladder?