Exporters Make Money

In an otherwise excellent critique of Donald Trump's trade policy, Mercatus economist Veronique de Rugy writes:

Worst of all, the deal would actually reinforce these Chinese behaviors. For instance, the deal in question would require that China use its state-owned enterprises to buy $40 billion to $50 billion worth of American agricultural products annually—instead of the roughly $20 billion it bought previously. That's no victory. That's a concession China already agreed to more than two years ago. And that's pursuing the very sort of top-down, government-directed policy Trump claimed he wanted to change in the first place.

Unfortunately, thanks to a profound misunderstanding about the value of exports, the president may receive some praise for getting China to commit to buying more U.S. soybeans. While it may be very counter-intuitive to most people, economists understand that exports are valuable goods that we give up in exchange for imports; exports themselves are costs, rather than benefits.

Think about it this way: When you go to work in the morning, you export your services to your boss in exchange for wages, which, in this illustration, are an import. Even if you love working and derive value from it, for the most part you export your work in exchange for your wages and the goods and services that you can then buy with them. Imports, and the consumption they allow, are the goal of trade—not exports. As George Mason University's Donald Boudreaux notes, "What is true at the level of the household is here true at the level of the national economy: the goods and services that Americans export to foreigners are the costs that we willingly incur in order to be able to import into our country the goods and services that we receive from foreigners in exchange."

In this section, she starts out well, pointing out that it's kind of weird for Mr. Anti-Socialist (my words, not Vero's) Donald Trump to congratulate a government that moved away from destructive central planning of the economy for engaging in more central planning.

So that's not my criticism. My criticism comes in the next two paragraphs.

Vero writes that exports are costs. That's true. But then she writes that we exchange exports in return for imports. Not necessarily. What we know is true is that exporters typically exchange exports for money. They then use this money to buy other things-domestic goods and services or imported goods and services-or to invest.

Notice that Vero writes:

When you go to work in the morning, you export your services to your boss in exchange for wages, which, in this illustration, are an import.

That's stretching it. I don't think money is an import.

She then writes:

Even if you love working and derive value from it, for the most part you export your work in exchange for your wages and the goods and services that you can then buy with them.

OK. But wouldn't it make sense for you to celebrate the fact that you got paid for what you love doing? When people export things, they get paid. So it's not at all strange to celebrate American producers getting paid for things they produce. They aren't giving the exports away; they're selling them. Her analogy with individuals is apt. Just as exporters get paid for their exports, workers get paid for their work. So go back to the individual. Imagine Vero gets a lucrative contract for some free-lance work and when she receives her first big payment, she celebrates. Would it make sense to say, "Oh, Veronique, don't celebrate. You had to work for that money. You should celebrate only when you buy things with the money, not when you get paid."

HT2 Donald Boudreaux.

The post Exporters Make Money appeared first on Econlib.

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