AEI Chart of the day: We’re not ‘losing’ 2B in trade with the EU, we’re benefiting from a 2B net inflow of goods According to foreign trade data from the Census Bureau, the US received 4.6 billion in goods produced by firms in the European Union (EU) countries last year, and the EU countries received 2.3 billion of goods produced by American firms. The result of those trade flows last year is that there was a net inflow of goods entering the US from the EU in the amount of 2.3 billion, or a net outflow of goods from the EU in that amount. We could also describe that outcome as a goods surplus of 2.3 billion for the US and a goods deficit of 2.3 billion for the EU. Measured in terms of who ended up with the greatest amount of goods on net, the US was clearly ahead of
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But in the uninformed, upside-down world of the Protectionist-in-Chief Donald Trump, he describes America’s trade with the EU by claiming that “we lose $151 billion on trade with the European Union.” Seems like it should be the EU complaining that they “lose $152 billion worth of goods by trading with the US.” We enjoy a $152 billion net inflow of goods from the EU and Trump somehow thinks that is “losing” on trade? In the Deal Maker-in-Chief’s world, he apparently thinks it would be a better deal for the US to increase the volume of goods produced here that leave the country for the benefit and enjoyment of foreigners, and decrease the volume of goods produced overseas that enter the country for the benefit and enjoyment of Americans.
Here’s Milton Friedman schooling the Protectionist-in-Chief on the simple and basic economics of trade (bold added):
In the international trade area, the language is almost always about how we must export, and what’s really good is an industry that produces exports, and if we buy from abroad and import, that’s bad. But surely that’s upside-down. What we send abroad, we can’t eat, we can’t wear, we can’t use for our houses. The goods and services we send abroad, are goods and services not available to us. On the other hand, the goods and services we import, they provide us with TV sets we can watch, with automobiles we can drive, with all sorts of nice things for us to use.
The gain from foreign trade is what we import. What we export is a cost of getting those imports. And the proper objective for a nation as Adam Smith put it, is to arrange things so that we get as large a volume of imports as possible, for as small a volume of exports as possible.
This carries over to the terminology we use. When people talk about a favorable balance of trade, what is that term taken to mean? It’s taken to mean that we export more than we import. But from the point of our well-being, that’s an unfavorable balance. That means we’re sending out more goods and getting fewer in. Each of you in your private household would know better than that. You don’t regard it as a favorable balance, when you have to send out more goods to get fewer coming in. It’s favorable when you can get more by sending out less.
MP: As long as we have a protectionist president who has a fundamental misunderstanding of how trade works, we’ll continue to hear nonsensical rhetoric about how the US is “losing on trade with the EU and other countries,” when in fact it’s a basic economic principle that trade is win-win and not win-lose. And when you have such a protectionist “crafting” America’s trade policy, you can expect significant long-term economic damage to American workers and the US and world economies.