Trading Things

With the recent Windsor, Canada, Washington, D.C., not to mention the violent Seattle, Washington, demonstrations against international trade, one might get the impression that trade, particularly trade imbalances or deficits are evil. Let's look at it.

I go to my grocer and buy $100 worth of merchandise from him. Should I or anyone else be upset? You say, "What's the beef, Williams? People do that every day!" Yes, but can't you see there's a trade imbalance? I buy more from my grocer than he buys from me. That's just as bad as the Japanese. Americans buy more from the Japanese than they buy from us. Shouldn't Congress step in to do something about the Williams/grocer trade imbalance?

Actually, there's no more of a trade imbalance between my grocer and me than there is between the citizens of Japan and U.S. citizens. Here's the story about my grocer and me. Prior to entering his store, there was $100 in my capital account (money) and zero in my current account (goods). After the grocery purchase, my capital account fell by $100 but my current account rose by $100. My account is balanced. What happened to the grocer's accounts? When he sold me the groceries, his capital account rose $100 and his current account fell by $100. His account is also balanced.

Here's a question for you. Would the essentials of this transaction be any different if, instead of making purchases from the grocer down the street, I made purchases from a grocer cross town? What about in another county, another state, or another country? Your answer ought to be: there'd be no trade imbalance no matter where transactions are made.

Why do people trade anyway? The only answer has to be: both parties to any voluntary exchange benefit. I value the $100 worth of groceries more than keeping the $100 in my pocket. Similarly, the grocer values getting the $100 more than keeping the groceries. But if everyone gains from trade, how come tariffs, quotas and embargoes and other trade barriers are erected? The simple answer is that trade barriers permit the few to gain advantages at the expense of the many.

For example, my grocer and his employees might want higher profits and wages. They might create a political action committee (PAC) to lobby and make campaign contributions to Pennsylvania legislators in an effort to get restrictions against Pennsylvanians shopping for groceries in New Jersey and a ban on New Jersey grocery imports. That way Pennsylvanian grocers could charge higher prices allowing them and their employees to earn higher profit and wages. Clearly, they would benefit. Pennsylvanian grocery shoppers would lose.

Politically, the grocery lobby couldn't get away with those restrictions if they made true agenda known. They'd have to conjure up something for public consumption. They might sponsor advertisements saying things like: "New Jersey's human rights record is despicable. Look at how they treat their children and pets. They don't enforce seatbelt laws. Their senior citizens have to choose between food and having prescriptions filled. Plus, we just want a level playing field." Any excuse for the restrictions will do except one: we want to prevent New Jersey groceries from coming into Pennsylvania so we can charge higher prices and earn greater profits and higher wages. Rarely, and understandingly so, do we see coalitions of consumers lobbying for trade restrictions and against lower prices.

If instead of political jurisdictions such as Pennsylvania and New Jersey used in my example were changed to Japan, England, Russia and yes, China, the essentials of the argument wouldn't change one iota.

Walter E. Williams
June 9, 2000
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