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Imports and exports are inextricably linked – imports aren’t evil, they’re a necessary ingredient to greater exports – Publications – AEI

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AEI Imports and exports are inextricably linked – imports aren’t evil, they’re a necessary ingredient to greater exports As counter-intuitive as it might seem “Imports Are the Driver of Economic Growth, Not Exports” as Allan Golombek explains in Real Clear Markets today (shortened version appears below): If anyone still needs proof that trade isn’t a zero-sum game in which success depends on turning imports into exports, an examination of data for over 160 countries provides it. For almost four-fifths of countries last year, the volume of exports and imports marched together, up or down, in lockstep. Growing an economy is not a matter of turning imports into exports. Robust economies do more of both. Mercantilists view the trade balance of a country the way one would read the balance

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Imports and exports are inextricably linked – imports aren’t evil, they’re a necessary ingredient to greater exports

Imports and exports are inextricably linked – imports aren’t evil, they’re a necessary ingredient to greater exports - Publications – AEI

As counter-intuitive as it might seem “Imports Are the Driver of Economic Growth, Not Exports” as Allan Golombek explains in Real Clear Markets today (shortened version appears below):

If anyone still needs proof that trade isn’t a zero-sum game in which success depends on turning imports into exports, an examination of data for over 160 countries provides it. For almost four-fifths of countries last year, the volume of exports and imports marched together, up or down, in lockstep. Growing an economy is not a matter of turning imports into exports. Robust economies do more of both.

Mercantilists view the trade balance of a country the way one would read the balance sheet of a company, with exports taking the place of profits and imports seen as losses. Global trade is seen as being divided into winners and losers, with one country’s gain being another’s loss. But trade is not a win-lose game. Success is not a matter of exporting more, and importing less. More often than not, when one declines, so does the other.

Taking data aggregated in the CIA’s World Factbook, for countries with a population of a half-million or more, one finds that between 2015 and 2016, 129 countries experienced increases or decreases in both exports and imports. Only 33 countries experienced an increase in one category and a decrease in the other. and only three of those rank among the world’s 25 leading exporting nations. Reduced imports do not correlate with increased exports.

It should not be surprising that growing import totals do not drive down export totals. While some see trade as a war, in which winning depends on buying less from other countries, it is actually just a series of consumer transactions. The buyer and the seller both benefit, or they wouldn’t make the transaction.

Imports are not a necessary evil; they are a necessary ingredient. Companies requiring inputs toward a finished product need to get the best price, quality, and service levels they can to compete. They need the widest potential network of potential suppliers. Being able to import – and therefore obtain the best possible terms and conditions from domestic and foreign suppliers – is crucial to being able to efficiently make products for export.

In fact, the opportunity to import helps achieve productivity and prosperity more than the opportunity to export, because it does more to broaden choice. Importing widens the circle of potential suppliers competing to meet the needs of consumers and intermediate producers. It forces domestic companies to become more efficient and compete more effectively. It generates economies of scale, spreading production costs over a wider and larger market. It allows countries to utilize comparative advantage, importing goods and inputs from countries that are most efficient at making them. And it transfers knowledge, allowing importers to benefit from technological spillover.

These are all reasons that the opportunity to import is fundamental to the ability to export. As the data for more than 160 countries demonstrates, the two go hand in hand.

MP: Over an almost 90-year period, the chart above shows graphically the extremely close correlation between annual exports and imports for the US (adjusted for inflation) with both series equal to 100 in 1929. (Note: The correlation coefficient, a statistical measure of association between two variables, for US exports and imports is 0.9913.) So the notion that the US can somehow discourage or reduce imports while encouraging and expanding exports is faulty, misguided and not even possible. If the goal is to expand US exports, we should welcome more imports, which are the “necessary ingredients” to greater, more efficient US production and greater US exports. It’s another important economic lesson about international trade that Team Trump needs to learn.

Imports and exports are inextricably linked – imports aren’t evil, they’re a necessary ingredient to greater exports
Mark Perry

Mark Perry

Mark J. Perry is concurrently a scholar at AEI and a professor of economics and finance at the University of Michigan’s Flint campus. He is best known as the creator and editor of the popular economics blog Carpe Diem. At AEI, Perry writes about economic and financial issues for American.com and the AEIdeas blog.

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